You’ve selected a home you love. You’ve put in the offer. Now, your lender wants you to get an appraisal done.
What is the role of the appraisal, and how will it impact your home purchase?
Here’s everything you need to know.
What is the primary purpose of an appraisal?
The purpose of the appraisal is to assess the value of your property. It can have a big impact on the final shape of your mortgage, including on your interest rates, required down payment, and final loan approval.
Buyers often underestimate the value of a house. Sellers often overestimate it. The appraisal serves as an unbiased third-party opinion about the value of the home, allowing lenders to make sober decisions. You don’t need one if you’re an all-cash buyer, but you might want one, just so you can make a sober decision as well.
Who orders the appraisal when buying the house?
The buyer orders the appraisal and pays for it. You can expect to pay $300 to $400 to initiate the process. Your realtor can usually refer you to a good, reliable appraiser.
If you want to choose your own appraiser, make sure they are licensed and certified. Per federal law, your chosen appraisal may not benefit from the transaction either directly or indirectly.
What happens if the appraisal is higher than the offer?
By the time you have the appraisal done, the home will already be under contract. This means the seller can’t suddenly deny the offer because they’ve learned the appraisal came in higher than expected. In fact, smart sellers often have appraisals done before setting a list price so they can void this situation.
If the appraisal is higher than the offer then you get to start your home ownership journey with additional equity in the property, and the knowledge that you secured a home for less than the market value.
Do sellers usually lower prices after appraisal?
If the opposite situation occurs and the appraisal is far lower than the offer, and you’ve made the purchase of the property contingent upon an acceptable appraisal, then you can request that the seller lower the price, so long as your lender is still willing to lend the new, smaller amounts.
Lenders have limits on how much they’re willing to offer, but they also typically won’t offer mortgages that are too small, making the offer a careful balancing act for anyone who relies on financing to complete a home purchase.
Can a buyer walk away if the appraisal is low?
If the buyer built an appraisal contingency into the offer, and they are acting within the deadlines set by the contract, then they can generally walk away without any consequence as soon as the appraisal comes back too low.
Often, the buyer must do this, as the lender might be unwilling to complete the mortgage process. Remember, the lender uses your home to secure the loan. They want to make sure the asset is capable of covering their losses in the event that you can’t pay. That can’t happen if the house isn’t valuable enough.
Get Help Today
Work with a lender who cares about you and your interests, and who will help you navigate possible pitfalls such as appraisal problems.
Contact Alex Doce to schedule a free one on one consultation today.
