For this last blog update , we’ll be discussing what happens when repairs are needed, the completion report and what happens when the home appraises high or appraises low.
What Happens When The Appraiser Recommends A Repair?
If your appraiser recommends any repairs or items that need to be resolved, the seller may need to take care of these items before the sale of the home. However, this is highly influenced on the loan program being used as well as the purchase contract agreement. This is usually agreed on between buyer and seller before even getting a mortgage lender involved.
If the loan program is USDA or FHA, for example, certain repairs recommended by an appraiser will need to be taken care of. If the loan program is conventional, the recommended repairs may not need to be done before the sale of the home.
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The Completion Report
If there are repairs that are needed and the seller takes care of those repairs, a completion report is needed. A completion report is a report done by the same appraiser who did the original report, who revisits the home to document and photograph the repairs. If the repairs are done to satisfaction, then no other report is needed. If the repairs are not done, an additional completion report is needed.
Completion reports and appraisal reports are usually paid for by the buyer. However, this is ultimately determined by the buyer and seller during negotiation of the purchase contract. A seller can pay for the appraisal report, the repairs, and any resulting completion reports that are needed if it’s negotiated in the contract.
The Appraisal Report Has A Higher/Lower Number Than The Sales Price!
If the appraisal report comes in with a higher value than the sales price and loan amount, this is actually a very good position for the buyer. In mortgage terms, this means that the home appraised high. This typically means that the value of the home already exceeds the price that the buyer is paying for it, which leads to instant equity.
As a reminder, equity is the difference between the value of the home and the price of the home. If the value is higher than the price you paid for the home, there’s positive equity. If the value is lower than the sales price of the home, there’s negative equity.
There are plenty of benefits of having a home with positive equity, especially right after you purchase it. In most housing markets, your equity in your home slowly rises as you pay down your home as well as the price of the home itself slowly increasing.
This means you’ve already essentially made money on your home purchase. Positive equity also opens up other options like cash out refinances, where the difference between the current value of the home and the refinanced amount can be given directly to the borrower for home improvements or other personal uses. The use of the cash out refinance is determined by the original loan program used, however.
If the appraisal report has a lower value than the sales price, that means the home appraised low. Mortgage lenders typically will not approve a loan on a home in this situation for certain loan programs. In this case, the purchase contract will need to be re-negotiated to have a sales price that matches the appraised value. While this may be a bonus for the borrower, there are times where the seller will back out due to the low appraisal.
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