The Home Appraisal Process: How It Can Impact Your Mortgage Payment
The home appraisal process is just a formality when buying real estate, right? You’ve found the house you love and put in a good offer, and it was accepted! It’s time to break out the Dom Pérignon White Gold? Sorry, not yet.
If you’ve applied for a mortgage, your home-to-be still has to undergo a comprehensive appraisal of its worth—and an unfavorable home appraisal can kill a real estate deal. Yikes! It can be a nerve-racking ordeal, but it’s actually good for you. Allow us to demystify the process.
Appraisals: Estimating a home’s value with fresh eyes
Just because you and the sellers have agreed on a price doesn’t mean it’s a done deal—your lender needs to be on board, too. After all, it’s the lender’s real estate investment as well. To get a mortgage, you’ll need a home appraisal because the home serves as collateral for your lender. If for some reason you end up unable to make your mortgage payments, the lender will have to foreclose on your home, then sell the property to recoup its costs. So your mortgage lender will have to know the value of your home before handing over that large chunk of change.
While the home appraisal process is somewhat similar to getting comps—as you did to determine a fair price—the appraiser delves in deeper to determine the home’s exact value.
An appraiser will investigate the condition, the square footage, location, and any additions or renovations. From there, he or she will appraise the home and determine its value.
An appraiser is trained to be unbiased, says Adam Wiener, founder of Aladdin Appraisal in Auburndale, MA.
“I don’t care what anybody wants the home to be worth,” he says. “As an appraiser, I’ll give you the answer. You may not like it, but it’s the answer.”
Off-site, the appraiser may also evaluate the current real estate market in the neighborhood to help determine the value of the property.
Usually, the lender or financing organization will hire the appraiser. Because it’s in the best interest of the lender to get a good home appraisal, the lender will have a list of reputable pros to appraise the home.
Whoever takes out the mortgage pays for the home appraisal, unless the contract specifies otherwise. Then the buyer pays the fee in the closing costs. If a seller is motivated, he may pay for the home appraisal himself to back his asking price, which benefits the buyer by reducing closing costs.
You’ll get a copy of the home appraisal, too
An appraiser sets out to determine if the home is actually worth what you’re planning to pay. You might be surprised by how little time that takes; the appraiser could be in and out of a home in 30 minutes, and that’s not a reason to panic.
An appraiser doesn’t have the same job as a home inspector, who examines every little detail. While they’ll pay particular attention to problems with the foundation and roof, the home appraisal process includes noting the quality and condition of the appliances, plumbing, flooring, and electrical system. With data in hand, they make their final assessment and give their report to the lender. The mortgage company is then required by law to give a copy of the appraisal to you.
Why do appraisals come in low?