WHAT'S THE DEAL WITH APPRAISALS?
If your loan is locked in and your prospective home passed its inspection with ease, then you’ve only got one challenge left: the appraisal.
Mortgage lenders require an appraisal on your home before they’ll provide a loan for the simple reason that the property is the underlying asset that serves as collateral for the loan. A lender will only approve a loan for a property that appraises for the full sales price of the home — or more.
Your lender will choose an appraiser to evaluate your home and you’ll pay the appraiser’s fee, typically $300 or $400. This fee is typically wrapped up into your loan and not paid upfront. However, you should check with your lender to be sure.
As a buyer, It’s important to recognize that an appraisal isn’t meant to derail your real estate deal. In fact, it can function as a consumer protection for a buyer. If your appraisal comes in higher than the price you’re paying for the home, then you benefit immediately because you’ll have more home equity in the property than you thought. If the appraisal comes in lower than the sales price, you and the seller will need to abide by the contract that was negotiated. If your contract is contingent on an appraisal, one option is to renegotiate the terms and come to a new agreement with the seller
Another option you have is to withdraw your offer and have your earnest money deposit returned. The appraisal has saved you from paying too much for the home.
How do home appraisals differ from home inspections?
While both the inspector and appraiser will walk around the home and take a good look around, they serve a very different function. To put it simply; the appraiser is looking at the value of your home (in comparison to others in the neighborhood); the inspector is looking for underlying defects with the home that may cause issues. However, if an appraiser spots an obvious issue with the home (a leaky sink or bad wiring) they MAY require an additional inspection.
How long does the appraisal process take?
I typically tell clients to expect 1-3 weeks between the lender ordering the appraisal and when we hear the results. The appraiser will schedule a time with the listing agent to walk through the house. After that appointment, they will take a few days to pull comparable properties and complete their analysis before sending it back to the lender.
What factors go into deciding the worth of a house?
There are quite a few factors that an appraiser will consider during their review. Such characteristics include: condition of the home, number of bedrooms and bathrooms, square footage and recently sold (or comparable) properties in the area.
If you're a homeowner, what can you do to improve the process?
Aside from having your home show-ready, there's not much more you can do. A good listing agent (cough, cough) will meet the appraiser at the house and share the improvements and upgrades on the home, as well as their opinion of comparable homes in the neighborhood. These are used to justify the price to the appraiser in an attempt to keep the deal moving along smoothly.
To recap:
- The buyer pays for the appraisal.
- The appraisal can serve as protection to the buyer.
- If the appraisal comes in high: Congratulations! You now have instant equity in your home. There is no renegotiation between the buyer and the seller.
- If the appraisal comes in low: The seller may ask for you to pay for the difference in cash (since the lender will not lend you more money than the home is worth). More often than not, the terms of the contract are renegotiated.
- If an agreement cannot be made, the offer may be withdrawn.
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Have any questions? Please feel free to contact me!