No home sale is final until you reach a settlement. There’s a reason why real estate signs often say “under contract” before they say “sold.” A lot happens after a buyer’s offer is accepted by the seller. A critical factor in closing the deal is having the home appraised by a lender. If the appraisal value comes in below the contract price, the sale often falls through. What can you do as a buyer to ensure the sale goes through? Read the strategies and insights below to prepare for one of the most overlooked parts of a home sale: the appraisal process in Colorado.
Home Appraisal Basics
First, let’s discuss the basics of the appraisal process in Colorado. I’ll explain what it is and why it’s a necessary step. When a bank is considering a mortgage loan request, they need to ensure the amount they are lending matches the home’s value. To that end, the bank will hire a licensed appraiser to visit the house and do two things. First, the appraiser needs to make sure the home is habitable. Second, the appraiser will tour the home to see how it compares to other recently sold nearby homes. These homes are called comparables or “comps” for short.
Finally, the appraiser will look at the comps’ sales over the last six months to help determine the home’s current value. The valuation is also based on market trends, supply and demand, and time on the market. It also considers extenuating factors such as upgrades or other features that affect the home’s value.
Recent Changes to the Appraisal Process in Colorado
A few years back, the appraisal process was changed when the Home Validation Code of Conduct was passed. This law encourages independent appraisers, so the process isn’t handled by someone working for the bank, the buyer, or the seller. In essence, this law is meant to make the appraisal process more fair and unbiased. However, in some cases, appraisers may not be local to the area, especially when appraisal management companies are involved. Problems arise when an appraisal is much lower than the interested parties had estimated.
What a Buyer Can Do
If you’ve found a home that you love, but the appraisal is too low, you need to take action. Take the appraisal with a grain of salt, and know that you have options. Remember, the seller wants to sell their home. Even though they would love to sell for the higher contract price, they may have to renegotiate. Most likely, the seller will appeal the appraisal as their first course of action. What are your options as a buyer?
- Make sure your offer includes an appraisal contingency. You’ll have the option to exit the sale if the value of the home is lower than the contract price.
- If you think the appraisal is flawed, you can challenge it. As a buyer, you have the right to receive a copy of appraisals, computer valuations, and other data.
- Switch lenders to start over with a new appraiser.
- Carve out more money for a down payment to make up the difference on a low appraisal. If you really want the home, this may be the only way to close on your dream home before other buyers snap it up.
- Work with the seller. They might lower the price or help pay for some of the closing costs.
As you can see, a lot goes on behind the scenes during the appraisal. The good news is that both buyers and sellers have options to continue the sale if the appraisal comes in too low.
This part of the home buying process can feel mysterious and overwhelming, but that’s what I’m here for! Get in touch, and we can talk more about the process of buying a home. It’s never too early to start! Moving forward is a lot less nerve-racking once you know what to expect. I look forward to helping you buy your dream home!
I'm Lauren Haug! I'm a teacher-turned-real estate agent, and I teach people how to build wealth through real estate in Northern Colorado.
443 E 4th Street #100
Loveland, CO 80537
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