What to Do when the Appraisal is above the Purchase Price?

16 de July de 2019

What happens when the appraisal is above the purchase price?

Contenido

0.1 What is a home valuation?

1 What aspects of your home determine the appraisal value of your property?
2 What advantage is there if the appraisal value is higher than the real value?
3 So, what disadvantage is there if the appraisal value is higher than the purchase value?
4 Appraisal above the purchase price?
5 How can I increase the appraisal value of my house?
6 Do you need an Official Appraisal?

What is a home valuation?

A valuation is an impartial professional opinion of the value of a home. Valuations are almost always used in purchase and sale transactions and are commonly used in refinancing transactions. In a purchase and sale transaction, an assessment is used to determine if the contract price of the home is adequate, given the conditions, location, and characteristics of the home. In a refinancing transaction, an assessment assures the lender that it is not giving the borrower more money than the value of the house.

Lenders want to ensure that homeowners are not excessively indebted for a property because the house serves as collateral for the mortgage. If the borrower defaults on the mortgage and enters into a foreclosure, the lender will sell the home to recover the money it lent. The assessment helps the bank protect itself against lending more than it could recover in the worst case scenario.

What aspects of your home determine the appraisal value of your property?

The appraisal value of a property is influenced by recent sales of similar properties and by current market trends. These aspects are decisive in evaluating the appraisal value of your real estate property:

The amenities of the house
The number of rooms and bathrooms
The functionality of the floor plan and the square footage are also key factors in evaluating the value of the house.

The appraiser must make a complete visual inspection of the interior and exterior and observe any condition that affects the value of the property, such as necessary repairs.

What advantage is there if the appraisal value is higher than the real value?

The advantage for the buyer is that absolute financing of the price they have paid for the home is possible, and the advantage for the financial institution is to ensure profits from the investment during the term of the loan, as well as the contracting of insurance, etc. All of this has led the Bank of Spain to conclude that companies should not overvalue the sector.

So, what disadvantage is there if the appraisal value is higher than the purchase value?

Not all news is good! Over time, it will mean an increase in the economic cost that the appraisal value exceeds the price of your purchase in:

You will pay more for your real estate property insurance.
Problems with the Tax Agency. If you write your home before a Notary for a price lower than the value registered in the appraisal, the Tax Agency could investigate you.
The more money the Bank lends us, the more interest we will pay.

Appraisal above the purchase price?

Currently the market is on the rise with prices, for this reason it may be the case that real estate appraisals are higher. They are an indicator of the evolution of the price of housing since its maximum validity is six months, that is, that in the future the rise in housing will compensate with the sale and appraisal price. Unlike the years 2009 and 2012, the appraisals were below the purchase price, anticipating what would arrive in the future in the residential market.

Ideally, the buyer should have at least 20% of the total purchase price (sale price plus mandatory added expenses such as notary fees, registration in the Property Registry, VAT in the case of a first-hand home, the tax on legal acts and, above all, the Tax on Patrimonial Transmissions (ITP).

How can I increase the appraisal value of my house?

If you are trying to sell your house, there are many relatively inexpensive things you can do to improve the appraisal value of your house.

Unmade beds or some dirty dishes will not affect its value, but plaster cracks, water-stained walls, dirty carpets, pests or persistent odors can. Fix the walls and do other touch-up work to show the best face of your home.
Repair leaky faucets, broken windows, and cracked ceilings.
Take the time to make the interior and/or exterior look welcoming.
Write down your improvements. Write down the repairs and updates you have made over the years, when you made them, and how much they cost. Remember the elements that an appraiser might not notice, such as a new roof or insulation, and even minor items such as a new kitchen sink also count. Keep in mind that improvements do not represent an increase in value, but everything helps!
If there have been positive changes in your neighborhood, such as new schools or new roads, inform the appraiser.