How does an Appraisal Work?
Why does your dream home have to be appraised before the deal can go through? It’s not meant to completely annoy you, but protect you and your lender. It's a sign to let all parties know you're going in the right direction, and the home is worth what you're paying for it.
An appraisal is different from a home inspection. An inspector tells you if all the mechanical and architectural systems are working. The appraiser, on the other hand, comes up with an informed, impartial and well-documented opinion of the value of the home. The appraiser uses data about comparable homes in the area, in addition to information gleaned during a walk-through of the house. Appraisers should be knowledgeable about your neighborhood. And they should be credentialed.
How long does it take?
"They usually get back to you in about a week," says Linda Rooney, an Illinois-based real estate agent at RE/MAX. "During the busy season it can take longer, but the bank likes to wrap it up."
How much does it cost?
Costs vary, depending on the complexity of the property. It could be $350 to $500, usually paid before closing. However, sometimes, it's a line item on your closing documents.
Do I want the appraisal to be high, low or match the list price?
Your appraisal comes in on target or even high. YESSSS. Keep moving on the path toward closing.
If the appraisal comes in too low, your bank will not want to make a loan for more than the house is worth. This could be the roadblock that scuttles the deal. But it doesn't have to. One of two possible solutions could keep your home purchase on track:
- Make a bigger down payment to make up the difference
- Persuade the seller to lower the price. This may work, as the seller doesn’t want to lose a buyer or revisit the issue with a new buyer.
- A combination of the above
Who hires the appraiser?
Not you. The bank will not accept an appraisal that comes through the borrower. The bank wants to avoid any influence-peddling — in other words, an appraiser who may be doing your bidding.
That’s where appraisal management companies (AMCs) enter the picture. These independently operated institutions are not connected to the broker, bank or seller. The bank notifies the AMC that an appraisal is needed, and the AMC orders the appraisal.
What’s the best way to handle a low appraisal?
If your appraisal seems inaccurate, you want to be sure the appraiser is familiar with your neighborhood. Sometimes, a couple of distressed properties or foreclosed homes in the area can skew the comps too low. An appraiser who's experienced with the area will know how to look past those oddball data points. If you're sure the appraisal is too low — and you've got the comps to prove it (go on with your BAD SELF!) — talk to your lender about filing an appeal. Or, ask for a second appraisal, though this would represent another cost to you.