What is an appraisal?
The lender will want to appraise a home in order to establish the correct value for lending purposes. The quality, condition, and location will have an influence on the value.
Related Reading: Steps to Buy a Home
As a buyer, you don’t have to do anything for the the appraisal. Your lender will order it after you pay for it (depending on the type of loan you are getting). The appraiser will reach out to the listing agent for access to the property. The listing agent will most likely provide the appraiser with comparable sales or upgrades in the home to defend the list price the agent established.
How long does an appraisal take?
This depends on the appraiser and the size of the property. An appraisal can take as little as 20 minutes but can be much longer.
The appraiser needs to fill out extensive paperwork, so the written portion of the appraisal takes much longer. Lenders, particularly for government backed loans, assign deadlines to appraisers.
How much does an appraisal cost?
The appraisal can cost anywhere from $500-$1000 and will be paid by the buyer. Depending on the loan you are getting, you might be able to roll your appraisal fee into your closing costs and avoid paying cash upfront.
Related Reading: What is the Inspection Period?
Buyer Tips for the Appraisal
- You will not have to attend the appraisal.
- The lender will review the appraisal once it is submitted. They will let you know if they approve and what the established value is.
- You will receive the appraisal report from the lender. Expect a turnaround time of 10 days.
- As long as the value comes in at contract price or above (rejoice), there is nothing for you to do.
What if the appraisal comes in low?
Examine the appraisal for any mistakes. Appraisers are human and it happens:
- Did the listing agent give the appraiser all the necessary documents, particularly the counter offer (if applicable)?
- Is the correct property listed?
- Is the square footage and number of rooms correct?
- Is all data accurate?
- Mistakes in the facts of the house are correctable. Anything else might not be.
If there are no mistakes, we will have 3 possible strategies to discuss:
1. We can try to negotiate with the seller. You have likely already spent money on the house (inspections, appraisals and possible moving expenses). Salvaging the contract is usually very desirable for all parties.
- If the seller reduces the price to the appraisal value, we can move forward as planned.
- If the seller wants to meet anywhere between the appraisal and contract price, you will have to look at your finances AND discuss this with your lender to see what amounts are possible.
- If the seller is not budging in price (maybe because they have a backup offer), you can walk away from the contract and get your earnest money back. This situation is very unfortunate because the you lose valuable time and money.
2. Seller or buyer can appeal the appraisal but that usually has very little effect. It’s very important that the seller’s agent provides comps, details of the previous sales, all upgrades in the subject property and other pertinent information to the appraiser in order to achieve the sales price.
3. The contract terminates if the buyer and seller can’t come to an agreement.
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