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 start the process. If you’re buying a house in Florida, your realtor can usually refer you to a good, reliable appraiser. If you want to choose your own, make sure they are licensed and certified. Per federal law, your chosen appraiser 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.
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FAQs
What does a home appraisal consist of?
A home appraisal looks at the property’s size, condition, location, and recent sales of similar homes in the area. The appraiser checks both inside and outside the house to estimate its fair market value.
How do home appraisals work?
Home appraisals work by having a licensed appraiser inspect the property and compare it to similar homes recently sold nearby. The appraiser then gives a report with the home’s value, which lenders use to decide how much they can loan.
What is the appraisal process?
The appraisal process is when a licensed appraiser looks at a home to decide its fair market value. They check the size, condition, location, and compare it to similar homes recently sold in the area. Lenders use the appraisal to make sure the home’s value matches the loan amount. This step protects both the buyer and the bank from overpaying for the property.
Why are appraisals for homes important?
They protect both the buyer and the lender by confirming the price is fair. This helps prevent overpaying and ensures the loan matches the home’s true value, which is why lenders also rely on home loan estimates to give borrowers a clear picture of costs.