What Is a Bank Appraisal, And How Can It Affect a Buyer?

Simply put, an appraisal is the unbiased estimation of the value of a house that a third-party appraiser manages. Lenders order them to guarantee you'll pay a reasonable amount when buying a house. Ensuring you do not pay more than what the house is worth.

Bank appraisals have been part of the process of buying Nanaimo real estate for many years. For example, you've offered $950,000 to get your dream house, but the said house is not worth more than $900,000. according to the appraiser. The bank will lose a lot if you fail to meet your mortgage payments.

Therefore, the bank will ensure the money they lend is secured, and a bank appraisal is one way to do that.

How does a bank appraisal work?

An appraisal occurs after the offer to buy has been accepted and before the mortgage is advanced and the buyer gains ownership.

So, who pays for an appraisal? This is based on a few factors, mainly if a bank or prime lender did the appraisal. A lender hires an appraiser, but usually, the buyer is the one to pay. Nonetheless, it will all depend on who the buyer will use for their mortgage.

What happens if your appraisal comes in low?

If a bank appraisal is less than the agreed amount, the bank will fund a mortgage based on the value. Sad to say, at times, bank appraisals do not go as smoothly as we would hope. And the appraisers are convinced the house isn't worth what the buyer had initially planned to pay the seller.

For instance, you have agreed to pay $900,000 for a house, but the house's appraised value is below $850,000. The bank will only cover the $850,000. If you want to go ahead with the purchase, you must find a way to fund the $50,000. Or agree to a larger downpayment.

If your appraisal is lower than the offer price, the buyer might have a few choices:

1. Find another lender who will send a different appraiser and hope the second appraiser values the house at the initially agreed offer amount.
2. Turn up with the cash for the difference. Borrow the cash required to help make up the difference if you're short on cash. 

There are a few measures you can take to protect yourself from low appraisals; some include:

• Have a subject to finance on your offer and insist that your lender performs the appraisal during the conditional period.
• Don't pay more than the agreed amount in the first place. The bank appraisers will go through the same comparable sales as you and your REALTOR to make sure you've understood how the house compares to the latest sales.

• Have an emergency fund. An emergency fund is essential; unexpected costs will always show up during the home buying process. You should ensure that you have extra cash in your pockets to fund the difference.
• Have an emergency plan\ plan B. Talk to your Realtor & lender about options before you put in an offer and have a plan B if the property doesn't appraise.