Appraisal can feel like one of those real estate jargon words that you know needs to happen during the home buying process but aren’t really clear on what it means. If you’ve been through an appraisal you know it can be one of those steps that can be a breeze or can be a cause for contention. If you go into the appraisal knowing what to expect it can make a huge difference.
So what exactly is an appraisal?
An appraisal is an act to determine the value of something. So the appraisal on the house you want to buy will determine the correct value of the home.
Why do you need an appraisal?
If a buyer is approved for a $250,000 loan and finds a home listed for $250,000 they will want to be sure the home is not actually worth $200,000. The lender will use an appraisal to determine that the value of the home correctly matches the value of the loan.
1. Your lender will order the appraisal, and the appraiser will schedule the appraisal with the sellers. Most of this process happens behind the scenes for the buyers. If you are a seller you will just need to approve the appointment request for the appraiser. The lender or real estate agent should keep the buyer up to date with what is happening but as a buyer you won’t need to be involved in any part of this step.
2. The appraiser will assess the home. During this appointment the appraiser will assess the condition of the home as well as the size and attributes the home has. The most common method of assessing a home is by comparing the subject home, the home you are purchasing, to comparable homes in the area. The appraiser will then determine the value based on how the subject home compares to what the other homes sold for.
3. Once the appraiser has determined the worth of the home he or she will complete the appraisal report and send it to the buyer’s lender. The lender will then distribute it to the real estate agents and the buyer.
4. If the results of the appraisal are in line with what the purchase price was you are set to move onto the next step in the closing process.
If the results come back low there are things that can be done. As a seller your real estate agent may work with the appraiser to find more suitable comps if they feel that is appropriate. A buyer’s agent may also suggest reopening negotiations with the seller to make your purchase price more similar to the actual value of the home.
5. Once the appraisal value has been agreed upon you’re one step closer to closing!