8 of the Top Questions About Home Appraisals
Whether you’re buying a house or selling one, a home appraisal will likely come into play during the process.
But what exactly does that entail? And how could it impact your transaction (or the costs of it)?
We’ve broken down the most common appraisal-related questions right here:
1. What is a home appraisal?
An appraisal is essentially a professional valuation of a piece of property. A trained appraiser will visit the home, assess its condition and state, compare it to local properties, and determine its current market value. They’ll detail their conclusions in the appraisal report, which will state the final valuation, as well as how they determined it.
2. Why do I need a home appraisal?
Appraisals are industry standard, as they establish a fair market value of the property and they allow the lender to ascertain whether a property’s characteristics allow for financing (meet underwriting standards). Appraisals are also a benefit to the consumer.
3. Are home appraisals and home inspections the same thing?
Appraisals are for the benefit of the mortgage lender and the buyer. Appraisals allow for negotiation —- for example if a seller is asking $300k, but the property is only valued at $275k.
Home inspections are for the buyer. Home inspections are usually optional, while appraisals are not.
Their intent is different, too. While appraisals are meant to determine the market value of a property, home inspections are used to evaluate the home’s condition.
With a home inspection, buyers will get a report detailing any problems or issues noted at the house. They can then use this information to move forward with their own decisions on the property.
4. How much is a home appraisal?
Home appraisals usually cost between $450 and $915, though this number varies by real estate market, size of the home, type of loan, and other factors. Unfortunately, you can’t shop around for your appraiser (or their fee). Your lender will choose who conducts your home’s appraisal.
5. What happens if my home appraisal is lower than my offer (or higher than it)?
The goal is for the home to appraise for at least the price you (or the buyer) offered for it. If it doesn’t, here’s what happens:
- If the home appraises for more than what was offered: If the appraised value comes in higher than the offer, then that’s great news for the buyer. It means they may get built-in equity (depending on their down payment), and they’re probably getting a good deal on the property. If they were to turn around and sell the home right after closing, they may have a better chance of making a profit given the home’s current value.
- If the home appraises for less than what was offered: If the home’s appraised value comes in under what was offered, then the buyer has a decision to make (based on whether or not the appraisal is acceptable to the lender’s Underwriting department.) They typically have three choices: make up the difference between the appraised value and their offer out-of-pocket, try to negotiate the seller down to the appraised value, or back out of the deal entirely. The main point? The lender will only loan the buyer up to the appraised value, and there are several things they may look for to decide if the appraisal is acceptable. It’s up to the buyer to figure out the rest.
A quick note here: If you want to be able to back out of an offer, should the appraisal come in low, then you’ll need to include what’s called an appraisal contingency in your bid. This is a pretty standard clause in most offers, but you should make sure you (or your agent) include one before officially submitting a bid.
6. How long does a home appraisal usually take?
A lot of the home appraisal process is actually done off-site, using property data and sales records. The actual on-property appraisal portion actually only takes an hour or so (maybe more if it’s a particularly large property). Generally, you can expect to have the results of an appraisal within two weeks of it being ordered.
7. Can I be there for the home appraisal?
It’s not really necessary for the buyer or the seller to be present at an appraisal. An appointment will be scheduled and an agent will usually be there. That being said, there’s no rule against being present for the appraisal — unless the seller does not allow it.
8. Is there any way to avoid the home appraisal?
The only time you wouldn’t have an appraisal is in a cash sale. If a mortgage loan is involved, the lender will want to verify the property’s value before loaning money to purchase it. Some refinances, however, do not need an appraisal.
Have more questions about appraisals or the home buying process in general? We’re here to help. Get in touch with Embrace Home Loans today.