Real Estate Home Purchase Appraisals 101: Notes for Home Sellers
When a buyer is seeking a mortgage on a property, the lends will require that a property appraisal take place.
Who orders the appraisal? The buyer’s mortgage lender orders the appraisal, but the buyer pays for it.
When does the appraisal occur? Appraisal is usually scheduled within two weeks of the accepted offer. Most appraisal appointments are during week day, business hours.
Do I need to attend the appraisal? No, you will not attend the appraisal. If there are not obvious comparable properties that have sold within the last 6 months, we will meet the appraiser and we’ll go over the comps we used and state our case as to why we think the purchase price is justified.
How long does the appraisal take? Usually about 15-45 minutes depending on the size of the home.
Do I need to do anything special for appraisal? Yes, have your home ready like a showing and try to have all negotiated inspection repairs done BEFORE appraisal. Also, make sure to follow any special appraisal requests and be aware that certain types of appraisals will require access to attics, crawl spaces, electrical boxes and other home operating systems so be sure to have access to these available to the appraiser.
When will we see the appraisal price? The appraisal report will be sent to the buyer's lender. The lender will give a copy of the report to the buyer. If the appraisal price comes in lower than the purchase price, we can request a copy of the report. If there is no concern with the appraisal price, we will not likely see a copy of the report as it belongs to the buyer.
How long until we know if the property appraised for the purchase price? Usually five to ten days after the appraisal appointment. Once the report is written, the buyer’s mortgage lender forwards it to the buyer to let the buyer know whether the property appraised at the purchase price, below the purchase price, or above the purchase price.
If the property appraised at or above the purchase price, nothing further needs to be done and the closing process will proceed forward as planned.
If the property appraised for less than the purchase price, we have a problem. The bank will only give the buyer a loan based on the appraised value which affects the buyer's down payment percentage. This usually re-opens negotiations. Most often the buyer will come back to us and ask to renegotiate the purchase price down to the appraisal price. If we say no then the buyer has to come up with cash at closing for the difference between the appraisal price and the purchase price and many buyers can’t or won’t want to do that.
The second option is for the buyer and seller agree on a price between the appraisal amount and purchase agreement amount.
For example, if the purchase price is $525K, but the appraisal only came in at $515K and we will only agree to lower the price to $520K then the buyer has to decide if he or she is going to bring an extra $5K on top of the down payment and closing costs to closing or walk away from the deal.
Lastly, if an agreement can't be reached and the buyer walks away, their earnest money is usually refunded and you put the house back on the market with the "low appraisal cloud."
SIDE NOTE: When a property purchase transaction occurs where an FHA loan is being used to buy the property, the property is assigned a case number. When the FHA appraisal is performed, the appraisal is registered with that case number. The appraisal will then be attached to the property and usable for 120 days (4 months) per FHA guidelines. If you do not close with buyer A using an FHA loan, buyer B may close using the same appraisal for a period of 120 days assuming buyer B is doing an FHA loan.Until the 120 day mark is reached a new FHA appraisal may not be ordered or used. If a buyer is using a loan other than an FHA loan to purchase the property, then a new appraisal will be ordered on a new transaction.
Wait, can we object to a low appraisal? Technically, yes. We could ask for appraisal adjustments or a new appraisal but it would usually be on the seller's dime, the burden of proof falls on the seller and their agent and would most likely delay closing. The buyer would need to agree. Often, this process of appealing the appraisal result is not attractive to the buyer unless they love the house so much and they don't have the money to cover the difference that they will cooperate with the process.
More appraisal questions?
For answers click here for a great article from the National Association of Realtors on Appraisals filled with all of the answers you’re looking for.
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