The Appraisal Process When Buying a Home
Having an appraisal performed is one of the most critical aspects of getting a mortgage. It professionally estimates the value of the property that you’re hoping to purchase. By doing this it confirms the sales price for the lender. Here are a few things you should know about the appraisal process.
Why Lenders Insist on an Appraisal
Lenders require a home appraisal before they’ll issue a mortgage. They do this because they want to protect their investments. The lender needs to be able to sell the property to cover the loan if the buyer defaults on the mortgage. They can’t do that if the actual market value of a property is lower than the sales price.
You may receive a property inspection waiver (PIW) if you refinance and the loan amount is significantly less than the value of the home. Don’t count on it. PIWs are rarely granted even if your loan-to-value ratio is very low.
Who Pays for the Appraisal?
You will have to pay for the appraisal. You’ll mostly like have to be the one to arrange for it, too. This is the case even though it is to protect the lender, not you. The report is typically sent directly to the lender. You can ask that a copy come to you as well.
Cost and Time of the Appraisal Process
The typical cost of a professional appraisal is $300 to $400. It depends on the property type and location. More expensive houses that have more than one unit will cost more. The appraisal process can take anywhere from 3 to 10 business days.
Determining Property Value
Comparable sales are the most important component involved in arriving at a property’s value. They are also called comps for short. These are similar properties, usually located within a mile of your property, which have been sold in the last 90 days.
The appraiser will compare several of your property’s features to the comparables’ features. Then they will arrive at the value. Factors include:
- Square footage
- Appearance
- Amenities
- Condition
A large 4-bedroom home in an area with mainly 3-bedroom homes will likely have a higher value. A house with peeling paint and a patchy lawn in a well-maintained subdivision will appraise at a lower value.
If the Property Appraises for Less Than the Sales Price
A lender will use the sales price or the appraised value as the property price when they are deciding your loan amount.
You’ll probably get the loan amount you applied for if the property appraises at the same or more than the sales price. The lender will probably reduce the loan amount to match the value of the home according to the appraisal if it appraises for less.
Dealing With a Low Appraisal
You have a couple of options if the appraisal comes in low. First, you can walk away from the deal if you wrote a contingency in your offer that requires the property value to come in at the selling price.
You might be able to negotiate with the seller to lower the sales price. A third alternative might be to put more money down to cover the difference between if you really want the property.
You can always dispute the appraisal. Check out what comparable sales were used. Ask your agent if they’re appropriate. Your agent may be more familiar with the area than the appraiser was. They might be able to locate additional comps to support a higher value.
The appraisal process is not difficult, but many buyers find it nerve-racking. That’s why we help all our buyers make offers on homes with prices that match current market values. Give us a call. We’d love to help you find a new home!