Appraisals are an important and necessary component of the homebuying process, which is why we have created this Appraisal Guide for you! An appraisal will tell you and your lender how much the house you want to call home is actually worth, by creating a report that evaluates several factors. If you are at the appraisal point in the homebuying process, this means you’ve signed an intent to proceed and you’re super stoked to seal the deal! Before you can move forward, an appraisal must be completed.
Why is that? In order to entice a lender into giving you a home loan, they must know the value of the home to determine the loan amount. This is where loan-to-value (LTV) comes in. Loan-to-value is the amount of your loan compared to the value of your home. Lenders are picky about whether or not the house you want to buy is worth the amount of money they’re lending. The appraisal establishes the worth of the home and helps ensure you’re getting a fair price.
An appraisal is also required to refinance an existing home loan.
What is an appraisal, exactly?
An appraisal is an opinion of value, as defined by the National Association of Realtors, which comes as a standardized form, filled out by a licensed appraiser who is chosen at random by a third-party through your mortgage company. Your appraisal will detail the perceived market value of your home by evaluating certain aspects of the property that help determine a price. Here are a few things that will be considered and reported on in your appraisal:
Size – The size of your home in square feet. The appraisal will also detail the size of the property or lot, in terms of acreage.
Rooms – The total number of rooms, specifically bedrooms and bathrooms. For a room to be legally considered a bedroom, it must have a closet!
Age – The year your home was built and any improvements done on the property, like kitchen or bathroom renovations.
Location – Detailing neighborhood characteristics, like whether it is urban, suburban, or rural, and site information such as how the property is zoned. Your appraiser will also examine the area market to analyze trends, which will play a part in the appraisal.
Quality – The quality of construction, types of materials, flooring, utilities, type of heating and cooling unit, foundation, and all components of a home are noted.
Features – Fireplaces, porches, patios, decks, appliances, carports, garages and the numbers of each are all noted in the appraisal and can play a role in the potential value of a place.
Comparable Properties – An appraiser, as part of their report, will go to other recently sold area properties of a similar size and age and list some prices and specifics.
A lot of research and documentation goes into the 20-plus page document that is an appraisal, complete with pictures, maps, and details of the aforementioned items, plus other considerations. Feel free to ask your SMC mortgage banker for a copy of the appraisal once it’s complete!
Who is an appraiser?
Appraisers are state-licensed professionals who are certified by The Appraisal Foundation to report an opinion of value on a property. The appraisal is assigned to a random appraiser to ensure the property value assessment is not influence in any way – this means customers, realtors, or mortgage bankers cannot “recommend” an appraiser for the job.
How much will it cost?
This depends on a variety of factors, such as the type of loan (conventional, VA, FHA, etc.) and where the home is located. If the home is rural or simply doesn’t have an appraiser within proximity, the length of travel could add to the baseline cost of your appraisal – though not much (consider the cost of an extra tank of gas, perhaps). Your SMC mortgage banker can likely give you a price range to anticipate.
How long will it take once the appraisal is ordered?
Once an appraisal order has been assigned to an appraiser, we request appraisers return the appraisal report in five business days. Sometimes situations arise (holidays or any number of unforeseen circumstances) that require a few more days in processing. Appraisals for VA loans can take up to 15 days.
Technically you can, but don’t confuse the appraiser with an inspector. An appraiser is an independent third-party looking for fair market value of a home to determine worth, whereas an inspector is usually hired by the buyer to look at the condition of a home and potential issues therein.
What if my appraisal comes in low?
There are several options, some more appealing than others. You could negotiate with the seller (or ask your realtor to do this for you) to lower the sales price of the home, or you could pay the difference between the appraised value and the sales price – but this would be an out-of-pocket cost, not including your down payment or closing costs. If neither of these options appeal to you, the purchase contract can be voided out.
When does an adjustment come into play?
An appraisal could be looked at by an underwriter and they could find a mistake or find reason to request an adjustment to the appraisal. They would then reach out to the appraiser to request an adjustment based on facts – but this doesn’t mean the appraiser should or will make an adjustment, as an appraisal is an opinion.
What if my appraisal comes in high?
If the value of the home is more than the listing price, then you should probably do a happy dance and revel at closing that you’ll have automatic equity in your home!