What IS an Appraisal and Why Do I Want or Need One?
The job of an appraiser is to determine the value of the home you want to purchase. You pay for the appraisal and you will get a copy of the report. The appraiser is working on your behalf, but more specifically he or she is also working on behalf of your lender. You see, you have agreed to pay X dollars for a home – let’s say $320,000. If the appraiser visits the home and determines that it is worth $320,000 then all is well for everyone in the transaction.
If the appraiser values the home at $300,000, then we have a problem. First, the lender will only loan you, the buyer, funds based on a $300,000 sale. At this point, we will petition the Seller to try to save this transaction from an untimely demise. Options are that the seller will agree to accept the appraised value or will insist on some figure between the appraised value and the purchase price previously agreed upon. If Buyer agrees to a figure in-between the agreed purchase price and the appraised value – say, in our example, you agree to pay #305,000 for the house – you will have to bring an additional $5,000 to the closing to cover the deficit between the two figures.
What if the Appraised Value and the Agreed Upon Purchase Price Don’t Match Up?
The Seller can refuse to come down on the agreed purchase price, but if they do, the buyer can refuse to go forward and can exit the transaction and get back the earnest money – this is a standard protection in the Purchase Agreement. But this far into the transaction it is often hard to walk away. This is a very charged negotiation if it happens because the appraisal is usually one of the later steps and both sides have already planned on closing – Seller has gotten used to how much profit he or she anticipates from the sale and buyer has probably managed the loan and cash funds needed closely too. A big swing here creates havoc.
Again, as the buyer, understand that you cannot be required to pay more for the house than its appraised value. If the Seller holds to a price above appraised value, you can walk away. In some cases, in fact, you should. We should have a reasonably good idea of what a house is worth as we prepare our offer, but there are times when paying more comes in to play: examples might be in a multiple offer situation, or in a neighborhood that you are completely set on moving into, or if the house has some unique feature that fits your needs perfectly. It will be yours to decide, if these situations are true, if you are willing to pay to keep a deal on track. We will ALWAYS ask the Seller to sell for the appraised value, but if they will not, the decision will be yours.
When is the Appraisal Done?
As to the timeline for appraisal, the appraisal should be ordered promptly after a purchase agreement is accepted. The lender will order the appraisal. The lender will often ask the Buyer to pay at the time the appraisal is ordered. It may take up to a week in some cases for the appraisal to take place and it can take up to another week for the appraisal to be returned to the lender. (This timeline is long, both the completion and return of report are usually complete within about 10 days in our area.)
Neither you nor your agent attends the appraisal. In fact, the strong preference of appraisers is that no one else be present. The appraisal process is very data driven – specs, room sizes, features, year of construction, materials, age of mechanicals … these items are fixed. But appraisers also consider the market conditions and the comparable sales for the past 6 months to a year in the same school district and geographic area. There is also some real variability among appraisers – but we do not have the option of picking an appraiser we “like.” Appraisers are usually assigned through a pool of providers that are approved through the lending company.
Do I Get a Copy of the Appraisal?
You will know the appraised value. If it matches perfectly, that is great! If the house appraises for more than you agreed to pay, then we did a great job of negotiating and you have instant equity after closing. But it is worth knowing that the Seller and the Seller’s agent will NOT be informed of the higher appraised value for the home. This is good because there is no motivation for the Seller to walk away from your deal and list again for a higher price. The only time the Seller’s side is informed is if the appraisal forces the home to fail the limit for successful financing, as we discussed already.
More questions about appraisal? Please get in touch – I would be happy to discuss this issue, or any other questions you have related to Real Estate: