WHAT IS AN APPRAISAL?
An appraisal is the value of a home determined by an inspection of the property and its comparison to recently sold homes in the area. An appraisal is typical and common in the home buying and selling process. The appraised value determines the amount a lender will let you borrow for a property.
Who Appraises The Home?
Appraisals must be conducted by a licensed, third-party appraiser who has no connection to the buyer, seller, or lender. That way, all parties can be sure the determined market value is fair, unbiased, and free of any influence from any party that could benefit.
Timeline and Steps To An Appraisal
In general, the home appraisal process can take anywhere from a week to a month from the date it was ordered to the time the appraisal report is provided back to the lender. The appraisal process can be broken down into three simple steps.
1. The Lender Ordering The Appraisal
2. An Appraiser Coming To The Home and
3. The Appraiser Creating A Report and sending it to the bank.
If the home is appraised at or above the purchase price, the loan will be processed as usual. If the home is appraised lower than the agreed-upon purchase price, more steps will need to be taken since the lender cannot lend more money than the home is worth.
As the buyer, you need the appraisal to at least match the sales price, or else the bank may not approve your loan.
What To Do If The Appraised Value Is Too Low?
So what can you do when the appraisal comes back too low?
1. Re-negotiate the price – If the seller is open to it, the easiest option is to re-negotiate the sale price of the house. This is particularly effective if the appraisal comes back just slightly lower than the listing price.
2. Request a second appraisal – You may also be able to request a second appraisal if you believe the first wasn’t as accurate as it should have been.
If the seller isn’t willing to lower the price and a second appraisal doesn’t come back with a higher amount, your only options are to pay the difference out of pocket or pull out of the deal.
Real Estate Appraisal Vs. Home Inspection
One common question we get is, “Why should I have a home inspection if the bank will have one done?” First and foremost the bank does not order a home inspection, only an appraisal. The “inspection” that most are referring to is when an appraiser visits the property for 6-18 minutes and may or may not uses a checklist to determine eligibility for a government loan, not a home inspection.
Some differences between an appraisal and a home inspection are.
A home appraisal is a requirement of the lender, while a home inspection is recommended but not mandatory. The buyer is responsible for finding a home inspector and scheduling the inspection while the lender will schedule the appraisal.
An appraisal determines the home’s value, while an inspection documents its condition.
A home inspection dives more into the functional parts of the home, using special equipment to find problems that may not be seen by the naked eye. An appraisal does a surface-level review of the home and involves research on similar, recently sold homes in the area.
In summary, an appraisal determines the value of a home as determined by a licensed appraiser. An appraisal is primarily used for lending purposes and the appraisal process is three simple steps, ordering by the lender, visiting the property, and generating a report for the bank. Lastly, an appraisal does not substitute or even act as a home inspection, they are like apples and oranges.