What is an appraisal?
An appraisal is a valuation of the property during the home buying process. The appraiser works for the lender and inspects the property inside and out, and conducts their due diligence to ensure that if the lender has to foreclose on the home owner, they will be able to recoup their loan amount.
When is the appraisal ordered?
After the inspection and have negotiated repairs or credit, your mortgage lender will order the appraisal. We generally wait until the inspection period ends as the cost is usually around $350 – $500 which is considered part of your closing costs, and we do not want you to commit your funds for that until you are sure you want the home.. It usually takes about two weeks to receive the report after it has been ordered. The Buyer’s Realtor does not need to be present, only the seller’s. Upon completion of their visit, they will write up a report and send it to your mortgage lender who will then forward it on to you and inform you whether or not it appraised at or above/below the purchase price. If it appraised at or above what was paid, no more action needs to be taken and closing can continue as planned. However, if higher than what was paid that means instant equity upon move-in day! Most appraisals come back ‘at value’, meaning at the sales price. Banks are in the business of lending money, so the lender would prefer the home to appraise.
What if the appraisal is low?
If the appraisal is low and the sellers will not reduce their asking price to match the appraised value, then Buyers must decide if they will bring extra money in the form of a larger down payment, or at that point they can cancel the sale and their earnest money is refunded. For example, if the purchase price was $500K but the appraisal only came in at $475K, and the Seller will not go any lower than $480K, then an additional $5K would need to be paid at closing. (Or the Seller can lower their price, or the Buyer and Seller can split the difference.) This is where the value of a quality Realtor really comes into play – one that has exceptional negotiation skills can make or break a sale throughout the many pitfalls.
Can a low appraisal be appealed?
Yes. In the event of a low appraisal, both Realtors, the listing and/or the selling agent, can supply the appraiser with comparable properties to make an argument that the home is worth more. Often as the listing agent we will meet the appraiser at the property, but our brokerage always sends comparable properties. Lenders are prohibited from speaking with the appraiser.
The appraiser’s certification attests to the fact that the appraisal was conducted in a fair, impartial and objective manner, consistent with USPAP standards (Uniform Standards of Professional Appraisal Practice). The certification is essential to confirm the appraiser’s impartiality and objectivity, and must be signed by them. This provides assurance that the appraisal was carried out by a person who is unbiased, independent and has no vested interests in their findings.