Real Estate Lawyers Explain the Role of Appraisals when Buying or Selling a Home in New Jersey
When a buyer finances the purchase of a real estate property with a mortgage, the transaction process involves several more steps than with a cash buyer. One of those steps is the property appraisal. In this article, we will explore the basics of a property appraisal and what happens when there is a discrepancy between the appraisal value and contract price.
Purpose of an Appraisal in Freehold
Before a lender commits to financing a real estate property, it must confirm the value of the property, which will serve as collateral for the loan. The bank must be sure that if the mortgage holder (homeowner) defaults on their loan and the lender is forced to foreclose on the property, it can recover its loss by taking title to the property and selling it. The loan amount can be less than the appraised value of the property, but it cannot be more.
If a loan is secured for an amount that far exceeds the fair market value of the home, the bank will be unable to recover its losses in the event of a foreclosure.
It is not only those seeking financing for a real estate purchase that may have an appraisal conducted. An individual cash buyer may also wish to have a professional appraisal to determine the fair market value of the home they wish to purchase to ensure that they are getting a good deal and not overpaying for the property.
Is an Appraisal Mandatory in New Jersey?
An appraisal of a property is not required by New Jersey law but almost certainly will be required by a lender in order to obtain financing for the purchase.
What Occurs when an Appraiser Visits Your Home in Long Branch
A professional appraisal will visit the home to examine the property while it is common for the buyer to attend an inspection, where an individual hired by the buyer determines the condition of the home, the buyer does not usually attend the visit by the appraiser. The appraiser is typically from a company selected by the lender.
The appraiser will examine the inside and outside of the home. Then, they will compare the information they gathered, mainly the location, square footage, number of bathrooms, number of bedrooms, age of the home, and plot size or acreage, to the most recent comparable sales in the area to determine the fair market value of the property.
The fees for a home appraisal typically range from $600 – $900 and are paid to the mortgage lender by the buyer as part of the buyer’s closing costs. It may be as quick as a few days or as long as two weeks on average, but is generally quite fast.
Navigating Through Appraisal Contingencies in Tinton Falls
A buyer may wish to make the purchase of real estate property contingent on the appraisal of the property at a certain value. This contingency helps to ensure the buyer will be able to obtain financially and that they are making a wise investment decision. For example, a buyer may wish to make their purchase contingent on a house being appraised at at least the contract price, then the buyer has an opportunity to walk away from the deal without being in breach of contract.
If the property is appraised at a value lower than the price contracted for, then the language of the purchase agreement will control how the buyer and seller proceed. The purchase price may state that the purchase price will not exceed the appraisal value and if the appraised value is a certain dollar amount lower than the originally agreed upon price, then the contract may release the buyer of their obligations under the purchase agreement so that the buyer can exit the deal without being liable for any damages to the seller. However, if the appraised value turns out to be higher than the contracted price, the contract does not typically allow the seller to renegotiate the price.
Contact Our Real Estate Attorneys to Discuss Your Home Appraisal in Monmouth County, NJ
If you are in the process of buying or selling a home and the property has been appraised at a value higher or lower than the contract price, you may be wondering how to proceed from here or what the other party will do. Perhaps the other party is trying to get out of the deal, or maybe you would like to exit the contract, but you do not want to be liable for breach of contract.
That’s where an experienced real estate lawyer can help. A real estate agent may be knowledgeable about many parts of the transaction process, but they are not a trained attorney. Only a real estate attorney can properly inform you of your rights and options under your purchase agreement and advise you about the best course of action within your contractual options when an appraisal value and contract price do not match. Our real estate lawyers at Chamlin, Uliano & Walsh have successfully helped countless clients with the legal elements of buying and selling their properties in Freehold, Wall, Red Bank, Middletown, Rumson, Hazlet, Long Branch, Asbury Park, and other Monmouth County communities. We have the know-how and the foresight to anticipate what often causes issues down the line after the paperwork has been signed, and we use this to inform you about the various options and things worth considering in your real estate deal.
For more information on how our attorneys can assist you in navigating and protecting yourself with an ironclad real estate contract, contact our team at 732-440-3950 or toll-free at 888-328-9131 today.