An appraisal is a comprehensive look at a home’s location, condition, and eligibility for federal guarantees. For example, a home that doesn’t meet safety requirements such as handrails on steps will not be eligible for FHA or VA loans until the handrail is installed or repaired. Appraisers use the same data in their market research to find comparable homes as REALTORS® do when preparing CMAs. They are also members of the MLS, but they have additional guidelines from the lender that they must follow to minimize the lender’s risk. They may take off value for slow-moving markets, or markets with high rates of foreclosures. If prices are falling, the appraiser considers the number of days a home has been on the market far more conservatively.
When the appraisal is finished, the bank makes the decision to fund the loan, or it may require the seller to fix certain items and show proof that the repairs have been made before letting the loan proceed. If the loan doesn’t meet lending guidelines, the bank will decline the loan. Despite stricter lending and appraisal standards, most buyers’ loan applications go through to closing – nearly 85 percent. One reason for that is that real estate agents are preparing CMAs that are better tuned to lending standards, for sellers and buyers to better understand not only what the market is doing, but how much lenders are willing to finance.
Note: When vetting offers, a good agent can protect you by spotting when an offer comes in that is too high, will not pass appraisal, and does not offer a contingency in the event of a low appraisal. Your agent will know from experience when an offer is not all it appears to be.