An appraisal is the process of developing an opinion of value for real property. Real estate transactions often require appraisals because they occur infrequently, and every property is unique. I highly recommend this article from the National Association of Realtors on Appraisals to gain a better understanding of the appraisal process.
Your mortgage lender orders the appraisal but will call you at some point to pay for it. Generally, the cost is somewhere between $500 and $700, and it is considered part of your closing costs, even though you pay for it upfront.
A few tips about the appraisal:
- You do not need to attend.
- The buyer’s Realtor does not attend either. Only the seller’s Realtor attends.
- Once you pay for the appraisal, it generally takes about a week for the appraiser to complete it. After that, it usually takes another week or so for the report to be written. Expect it to take about two weeks from when you pay for the appraisal until you receive the report.
- Once the report is written, it’s given to your mortgage lender. Your mortgage lender will then forward it to you and let you know whether the property appraised at the purchase price, below the purchase price, or above the purchase price.
- If the property appraised at the purchase price, nothing further needs to be done, and the closing process will proceed as planned.
- If the property appraised for more than the purchase price, it is a good thing, congratulations! That means we got you a great deal, and you’ll have instant equity in your home on the day you move in!
- If the property appraised for less than the purchase price, we have a problem. The bank will only give you a loan for the appraised value. In this case, we then go back and renegotiate the purchase price with the sellers, ideally to the appraisal price. If they don’t come down to the appraisal price, you can choose to either walk away and get your earnest money back or bring the additional funds to closing. For instance, the purchase price is $500K, but the appraisal only came in at $475K and the sellers won’t go any lower than $480K. You have to decide if you’re going to pay an extra $5K on top of your down payment and closing costs or walk away from the deal.