Why Banks Appraise Homes – and What an Appraisal Has to Do With Your Purchase
When you’re buying a home in Albuquerque, your lender will almost always require an appraisal, even if you’re confident the home is worth the price. This step may seem like a technicality, but it plays a crucial role in the purchase process. The appraisal protects both you and the bank by verifying the property’s value before the loan is finalized. It’s one of the most important parts of the mortgage approval process and can even influence how your deal moves forward.
Why Banks Appraise Homes – and What an Appraisal Has to Do With Your Purchase
A home appraisal helps determine the fair market value of a property, ensuring the lender doesn’t loan more than the home is worth. Appraisals can affect your loan terms, your negotiations with the seller and your out-of-pocket costs at closing. If you’re buying in Albuquerque, it helps to understand what to expect before the appraisal even happens.
This guide explains the following:
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What an appraisal is and who orders it
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Why banks require an appraisal during the loan process
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How the appraisal affects your loan and purchase
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What happens if the appraisal comes in low
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How to prepare for an appraisal as a buyer
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What sellers can do to support a fair appraisal
Here’s a closer look at each.
What An Appraisal Is And Who Orders It
An appraisal is a professional estimate of a home’s current market value. It’s not the same as a home inspection; instead of looking for problems or repairs, the appraiser compares the property to similar recent sales to determine what it should reasonably sell for.
Your lender orders the appraisal, not you. They choose a licensed, third-party appraiser to make sure the process is neutral and follows federal lending guidelines. The appraisal typically happens after your offer is accepted but before your loan is finalized.
Why Banks Require An Appraisal During The Loan Process
Lenders want to make sure they aren’t overextending a loan on a property that isn’t worth the purchase price. If a buyer defaults, the bank may need to sell the home to recover its investment — and they don’t want to lose money in that process.
An appraisal protects the lender by providing a second opinion on the home’s value. It also protects you, the buyer, from paying more than the home is worth. In the Albuquerque real estate market, where pricing can vary from one neighborhood to another, this step adds an extra layer of security to the transaction.
How The Appraisal Affects Your Loan And Purchase
Once the appraisal is complete, your lender compares the appraised value to the agreed-upon purchase price. If the appraisal matches or exceeds the price, everything moves forward as planned.
But if the appraisal comes in lower than the price, the lender will base your loan on the lower amount, not what you offered. That means you’ll need to either renegotiate with the seller, pay the difference out of pocket, or find another solution to move the deal forward.
Appraisals can also influence other parts of your loan, like the loan-to-value ratio (LTV), interest rates, and mortgage insurance requirements. A lower LTV can help you qualify for better loan terms, which is something to keep in mind as you search Albuquerque homes for sale.
What Happens If the Appraisal Comes In Low
If the appraised value is lower than expected, don’t panic — you still have options. One option is to ask the seller to lower the price to match the appraisal. Some sellers are willing to renegotiate to keep the deal on track. Another option is to pay the difference between the appraised value and the purchase price out of pocket. This can help preserve the deal but may stretch your budget, so it’s something to carefully consider. If you believe the appraiser made a mistake or overlooked key details, you can request a second appraisal or challenge the original one with supporting documentation. And if your purchase agreement includes an appraisal contingency, you can cancel the contract without penalty. A skilled Albuquerque real estate agent can guide you through these options and help you decide which move makes the most sense for your situation. While a low appraisal can slow things down, it doesn’t have to stop your purchase altogether.
How to Prepare for an Appraisal as a Buyer
As a buyer, you don’t control the appraisal, but you can take smart steps to be ready. Start by working with your REALTOR® to make sure your offer aligns with market conditions. If you’re offering more than list price in a competitive market, be aware of the risks and know how you’ll handle a gap between the appraisal and the offer. Before making your offer, review comparable sales in the area with your real estate agent — that helps ensure you’re basing your price on actual market activity. It’s also worth asking your lender if they work with local appraisers who know the Albuquerque area well. When the appraisal report is ready, go through it carefully with your agent. If something looks off — like outdated comps or missing upgrades, your Albuquerque real estate agent can help you gather information and possibly challenge the value if needed.
What Sellers Can Do to Support a Fair Appraisal
If you’re selling, a strong appraisal supports the price you and the buyer agreed on. To help the appraiser see your home’s full value, start by making sure it’s clean, decluttered, and in good condition matters. Provide a list of any upgrades or renovations you’ve made, along with receipts or documentation. Appraisers look at facts, and these details can support a higher valuation. Be sure to point out any standout features, like new energy-efficient systems, added square footage, or extensive landscaping work. If your real estate agent suggests it, you can also offer a list of recent comparable sales that reflect your home’s value more accurately than the ones the appraiser may have. While appraisers base their assessments on data, a well-maintained, thoughtfully updated home sends a strong signal that the property is worth every penny.
The appraiser will focus on data and facts, but a well-maintained home that shows pride of ownership can help them see the full picture.
FAQ About Home Appraisals And Buying A Home
Check out these commonly asked questions about home appraisals. If you don’t see your question here, please call our office and we’ll find you the answers you need.
Who Pays For The Appraisal?
The buyer usually pays for the appraisal as part of the closing costs. It’s typically included in your loan estimate and costs around $700, depending on the home and location.
How Long Does The Appraisal Take?
The on-site visit often takes an hour or two, but the full report may take several days to complete and send to the lender.
Can I See The Appraisal Report?
Yes. Federal law gives you the right to receive a copy of the appraisal. Your lender should automatically send it to you before closing.
Can A Low Appraisal Kill A Deal?
It can, but it doesn’t have to. Many buyers and sellers renegotiate, or the buyer covers the difference. Your REALTOR can guide you through the process.
Is an Appraisal the Same as a Home Inspection?
No. A home inspection checks the property’s condition, while an appraisal estimates its value based on market data and features.
An appraisal may seem like just another step in the process, but it actually plays a significant role in your purchase. With the right preparation and support from a trusted Albuquerque real estate agent, you’ll know what to expect and how to respond to any surprises.
Ready to Talk to an Albuquerque Real Estate Expert?
Call Myers & Myers Real Estate at 505-401-7500 or fill out this form to talk about buying or selling your home in Albuquerque or the surrounding areas. In the meantime, explore:
