If you are buying or selling a home you will probably need an appraisal if there is a mortgage involved in the purchase. What exactly is an appraisal? The lender that is making the mortgage will order an appraisal to obtain an unbiased report on the value of the property. The buyer will pay for the appraisal as part of their loan costs and usually the seller will not see it. The appraisal is performed by a state licensed appraiser that is selected from a pool of lender approved, licensed appraisers. This prevents any possibility of influence over the appraisal by any of the parties to the transaction. The appraiser will render an opinion of value on the property and that will help insure that the lender and the buyer are not overpaying for a property.
The appraiser will make an appointment to view the property in person. They will measure the square footage, confirm the number of bedrooms & baths and check the status of the structure and operating systems. Upgrades, renovations and condition will also be noted at this time. The appraiser will then look for comparables or “comps” which are similar properties in the same area to compare with the subject property. The appraiser will look at current market data to determine what similar properties are on the market now and what similar properties have recently been sold for. Typically an appraiser will only consider properties that have sold within the last three to six months to get an accurate reflection of current market value. The last step is to assemble all this data into a final report. This report will detail the stats of the subject property and how it compares with the “comps” to arrive at a value. The appraiser will have market data statistics in the report to show how he arrived at the value of the subject property. The lender will require the value to be equal to or greater than the amount they are lending on the property in order to make the loan. If you are buying the property for $100,000 and getting a mortgage for $95,000 then the property has to appraise for at least $95,000 or the lender probably will not make the loan.
What happens if the property does not appraise for the purchase price? Generally the buyer and the seller will try to re-negotiate the price in light of the appraised value. Usually, the seller will agree to sell the property for the appraised value but the buyer can also make up the difference with their own funds if the seller refuses. Finally, if the contract has an appraisal contingency if the property does not appraise the buyer can decide not to purchase the property.
Sellers can take some steps to help achieve a good outcome before the appraiser visits to the property. There are certain things an appraiser is required to verify, especially when the loan is a government loan-VA, FHA or USDA. There must be an adequate number of working smoke and carbon monoxide detectors, there must be GFCI outlets in the kitchen and baths, there must be handrails on steps, electrical, plumbing and HVAC must all be in working order, no peeling paint and the roof must have at least 3 years of life left. These are some of the items the appraiser will be looking for and if you make sure all of these things are taken care of before the appraiser comes, it will prevent him from having to come back and second time to verify they have been remedied. There is an additional re-inspection fee every time the appraiser has to return to the property and it is usually around $150.00. That is certainly much more expensive the replacing a few batteries in your smoke detectors before the appraiser visits the first time.
Knowing what to expect before an appraiser visits the property can save both the buyer and the seller money and help ensure a quick, efficient and accurate appraisal.