Let’s get one thing straight: while the home buying process can be incredibly exciting, it can also lead to confusion. What’s the step many people forget, you might ask?
That would be the home appraisal.
While your offer on your dream home was accepted, you still have to go through the appraisal process before anything else can be finalized.
So what exactly happens during this step? Let’s break it down for you.
Appraisals estimate the home’s value with fresh eyes – or from an appraiser’s perspective. Although the buyers and the sellers have agreed on the price, the lender will need to agree too; the appraiser will investigate the overall condition of the house to determine its value. This means looking at the square footage, the location, and any other additions or renovations done to the home.
Usually, the lender will be the one to hire the appraiser. And don’t fret – the appraiser is trained to be unbiased.
When it comes to who pays for the appraiser, it can vary upon each deal. Whoever takes out the mortgage would pay for the home appraisal, unless a contract shows otherwise. However, if a seller is trying to prove their price point, they might pay for the appraiser to back the reason the home is priced as it is. These fees will go into the closing costs.
The appraisal is essentially protection for both the buyer and lender from a potentially bad purchase.
The price comes back higher than the approved asking price: that’s usually fine – the sellers could decide to put their home back on the market for more money, but usually the deal continues forward.
The price comes back lower than what was offered: that gets a little tricky. The lender won’t want to give more money than the appraised price; either the buyer can walk away and have their earnest money returned, they could come up with their own cash to cover the difference between the appraisal and the offer price, the seller could cover the difference if the buyers ask, or the buyers could challenge the appraisal and pay for a second opinion.
While a low appraisal might not be what you wanted to hear – after all, you found your dream home and your offer was approved – the appraisal kept you from a bad deal and paying too much for your home.