An appraisal is yet another opinion of the value of a property… But it's the opinion that matters the most because the bank won't lend you more for your house than the appraiser's opinion.
1. Purchase Price vs Loan Amount:
The bank is lending you the purchase price minus your downpayment. Since your giving the bank the downpayment in cash, they aren't lending you that amount and it goes against the total purchase price.
- Purchase Price: the total amount you're paying for the house.
- Loan Amount: The amount that the bank is lending you. The total amount minus your down payment.
The bank will only lend you the amount that the property is appraised for. In other words, the loan value must be equal to or less than the appraised value.
So, if your buying a house for $100,000 and your downpayment is %10 (which is $10k); the bank is lending you the rest - $90,000 to buy this house.
Purchase Price: $100,000
Loan Amount: $90,000
If the appraised value comes in at $90,000, the loan will still go through although the house was appraised $10k less than the total purchase price.
If the appraised value comes in at $80,000, there is a $10,000 difference that the bank won't cover. So, the purchase price will have to be dropped by $10,000 or the seller and/or buyer will have to bring extra cash to closing to make up for the difference. Poof.
2. Don't blame the appraiser: when appraisers bring up the little things like straps on a water heater, carbon monoxide alarms, etc. they're following regulations set by Fannie Mae and Freddie Mac. I've heard many appraisers mention that the last thing they want to do is drive out to a house to take a picture of a water heater with straps on it for a re-visit fee that barely covers their gas and time. Of course, I'm not suggesting you blame Fannie Mae and Freddie Mac. They are just entities put in place to create a system that not only sustains an opportunity for us to buy a house but that also regulates the quality of the house we're buying. It's the trickling down of the quality standards (ie. carbon monoxide filters, electrical standards, cracked siding, etc.) that leads to subtle annoyances in the purchasing process. In general, don't blame anyone, just get it done as efficiently and positively as possible :)
3. What's a room though?: There's often a 'non conforming bedroom' which means that someone is capable of living there but the room doesn't follow all the guidelines necessary to officially be called a bedroom. One of the most important guidelines is an egress window which must have an opening of 5.7 sq ft. Another important guideline is the height of the ceiling, it must be 6ft 8 inches minimum. Having a closet was a rule once upon a time but no longer is. The rest can be found here - https://www.portlandoregon.gov/citycode/28732
Make sure your realtor sends you some comparable properties that sold in the area in the last 6 months or so (farther back for slower paced areas). If your offer is within the prices that these properties sold at you should be ok, but no promises. The unfortunate thing is that an appraiser could be having a bad day and decide to price your property low for unforeseen reasons that only appraisers run in to in their valuation. What to do if you disagree and what the process of appraising is like is explained in my other blog 'The Appraisal Process.'
Although it might seem a little scary at this point, the appraisal is really just a mechanism that is trying to keep prices at a reasonable incline. And, as affected by emotion as we may be, I would rather a human do this than a machine!