Checks and balances – that’s what it’s all about. Lenders require appraisals to ensure their clients are not overpaying (or overborrowing) for a home.
If you’re unfamiliar with the appraisal process, here’s what you need to know.
- Appraisers do not work for Loan Officers or Real Estate Agents. Appraisers are neutral parties and evaluate properties based on a strict code of industry guidelines. Appraisers are state licensed and considered an unbiased third party.
- Appraisers inspect the property in person. While on location, appraisers consider the home’s location, age, condition, additions or renovations, and recent sales of comparable homes to determine the home’s value.
- Appraisals are not free. In most cases, the buyer pays for the appraisal. The cost varies depending on location and loan program, but $500 is a rough estimate.
- Appraisals take time. Don’t be surprised if it takes a week, or more during the busy season, for the appraiser to visit your home and prepare the report. It’s a very detailed process!
- Appraisals are ordered after you have a signed purchase agreement. Because appraisals take time, your lender will order the appraisal shortly after the purchase agreement is received.
- You will receive a detailed report after the appraisal is complete. The appraisal report you receive will offer proof of the valuation given by the appraiser, although it still needs to be reviewed by a mortgage underwriter. The sellers will not receive a copy of this report and will not know the appraised value (unless you share it with them).
If your appraisal report comes back and the appraised value greater than or equal to the purchase price listed on your purchase agreement, you’re in the clear.
What happens if the appraised value is less than the agreed upon purchase price? Negotiations happen and there are three possible outcomes: you walk away, you renegotiate the sales price, or you pay the appraisal gap (the difference between the purchase price and the appraised value).
If negotiations are necessary, rely on your team of experts. Your Loan Officer and Realtor will guide you in the right direction.