If you are buying a home with a mortgage loan, a home appraisal will be required by your lender. The appraisal is performed as a way to protect both you and the lender from paying more than the home is worth. The process is there to provide an independent opinion of the market value of the property.
What is the Home Appraisal Process?
In most states, home appraisals must be performed by third-party licensed home appraisers. The appraiser will inspect the condition of the home, assess any upgrades/additions and perform an appraised analysis based on the past sales of comparable homes in the area. The home appraisal is a separate process than other home inspections. It is meant to determine the current market value of the house and its property. A key thing to remember is that appraisals look backwards in time. Market analyses from your Realtor® look forward.
How Long Does the Appraisal Take?
Depending on the type of appraisal and the appraiser performing it, it may take a few days or several weeks to submit the official report. The property inspection itself may only last 15 minutes or it could take several hours. The timing of the appraisal is important to a smooth and efficient closing. It should usually be ordered by the lender or the buyer early on in the closing process.
What is an Appraisal Gap?
For the simplest real estate transaction, you’ll want to avoid a significant “appraisal gap,” which is a gap means that the house appraises for less than the agreed-upon purchase price (and thus the mortgage loan to value ratio is affected). If there is a major appraisal gap, performing the appraisal early on will ensure any necessary renegotiations can take place without causing too much delay. However, it’s important to know that an appraisal gap is not necessarily a bad thing. It may slow down the process some, but this becomes an item to be negotiated. Discuss with your buying agent techniques that can be used to negotiate this scenario upfront in your offer.
What if There is a Large Appraisal Gap?
Home buyers will usually have the option to pull out of the transaction or renegotiate if the appraisal comes in much lower than the purchase price and the seller won’t come down in price. A low home appraisal could be a blessing in disguise if it keeps you from overpaying for the property. If the appraisal comes in higher, it may also be to the buyer’s benefit. The seller cannot cancel the contract and the higher price will make it easier for the mortgage lender to approve the purchase loan amount.
How Much Does the Appraisal Cost?
Generally speaking, home appraisals will cost around $300-400 for single-family homes. Larger multi-family property appraisals may run you as much as $600. The appraisal fee may be paid upfront or rolled into your overall closing costs. Discuss this with your lender.
Can I Appeal the Appraisal?
If you feel the appraiser made an error and/or overlooked certain property details, you can appeal the appraisal and pay for another one. Contact your lender or talk with your buyer’s agent to know your options.
What if the Home is in a Natural Disaster Area?
We work with many clients in Chester County, PA, which was recently stricken by severe flooding from the remnants of Hurricane Ida. The county has been declared a natural disaster hazard zone and this will affect the home appraisal and inspection processes. Homes in locations where natural disasters (such as wildfires, earthquakes, floods, tornadoes, hurricanes, blizzards, etc.) have taken place or are always a constant threat require natural disaster inspections certificate. They have to be checked specifically for any damage that may have occurred between going under contract and the occurrence of the disaster event before the closing can take place.
If you are buying a home, it’s important to understand the entire process—whether it’s applying for your mortgage loan, searching for your home, making purchase offers or going through the final closing process. If you have more questions about home appraisals, just let us know. Contact us today for help with your home buying journey.