February 27th, 2019 12:04 PM by Jackie A. Graves, President
home appraisal process is just a formality when buying real estate, right?
You've found the house you love and put in a good offer, and it was accepted!
It's time to break out the Dom Pérignon White Gold? Sorry, not yet.
you've applied for a mortgage, your home-to-be still has to undergo a
comprehensive appraisal of its worth—and an unfavorable home appraisal can kill
a real estate deal. Yikes! It can be a nerve-racking ordeal, but it's actually
good for you. Allow us to demystify the process.
Appraisals estimate a home's value with fresh eyes
because you and the sellers have agreed on a price doesn't mean it's a done
deal—your lender needs to be on board, too. After all, it's the lender's real
estate investment as well. To get a mortgage, you'll need a home appraisal
because the home serves as collateral for your lender. If for some reason you
end up unable to make your mortgage payments, the lender will have to foreclose
on your home, then sell the property to recoup its costs. So your
mortgage lender will have to know the value of your home before handing over
that large chunk of change.
the home appraisal process is somewhat similar to getting comps—as you did
to determine a fair price—the appraiser delves in deeper to determine the
home's exact value.
will investigate the condition, the square footage, location, and any
additions or renovations. From there, he or she will appraise the home and
determine its value.
appraiser is trained to be unbiased, says Adam
Wiener, founder of Aladdin Appraisal in Auburndale, MA.
“I don't care
what anybody wants the home to be worth," he says. “As an appraiser, I'll
give you the answer. You may not like it, but it's the answer."
appraiser may also evaluate the current real estate market in the neighborhood
to help determine the value of the property.
lender or financing organization will hire the appraiser. Because it's in the
best interest of the lender to get a good home appraisal, the lender will have
a list of reputable pros to appraise the home.
out the mortgage pays for the home appraisal, unless the contract specifies
otherwise. Then the buyer pays the fee in the closing costs. If a seller is
motivated, he may pay for the home appraisal himself to back his asking price,
which benefits the buyer by reducing closing costs.
sets out to determine if the home is actually worth what you're planning
to pay. You might be surprised by how little time that takes; the appraiser
could be in and out of a home in 30 minutes, and that's not a reason to panic.
doesn't have the same job as a home inspector, who examines every
little detail. While they'll pay particular attention to
problems with the foundation and roof, the home appraisal process includes
noting the quality and condition of the appliances, plumbing, flooring,
and electrical system. With data in hand, they make their final assessment
and give their report to the lender. The mortgage company is then required by
law to give a copy of the appraisal to you.
As the buyer,
you'll be paying for the home appraisal. In most cases, the fee is wrapped into
your closing costs and will set you back $300 to $400. However, just because
you pay doesn't mean you're the client.
is the lender, not the buyer," Wiener says. This ensures that
appraisers remain ethical—in fact, it's a crime to coerce or put any pressure
on an appraiser to hit a certain value. Appraisers must remain independent.
less, and public trust in the appraisal is lost," says Wiener.
essence, the home appraisal process is meant to protect you (and the
lender) from a bad purchase. For instance: If the appraisal comes in higher
than your asking price, it's generally fine. Sure, the sellers
could decide they want more money and would rather put their home back on
the market; but in most cases, the deal will go through as expected.
appraisal comes in lower than what you offered, this is where things get
tricky: Your lender won't pony up more money than the appraised price. So if
you and the sellers agree on $125,000 but the appraisal comes in at
$105,000, it creates a $20,000 shortfall. What's a buyer to do? Read
appraisal process happens, your appraisal comes in low, and your contract with
the seller was contingent on an appraisal, you could walk away and have
your earnest money returned.
If you prefer
to buy the home anyway (or waived your appraisal contingency), there are
some other paths you can pursue:
Come up with the cash to cover
the difference between the appraisal and offer price.
Ask the seller to cover
Challenge the appraisal, and
pay for a second opinion.
Keep in mind,
though, that your new report could come out identical. Also keep
in mind that if you do choose to walk away, that's actually good news, although it may not seem
like it at the time. Why? Because the appraisal kept you from paying too much
for your home.
appraisal is done, you're still not ready to close without another
nerve-racking step called a home inspection.
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