STEP 7 – Appraisal
The inspections went well, the seller may or may not have agreed to fix some of the items, and now you are moving forward with the next step which is the appraisal. Here are the key points for you to know.
1. Your mortgage consultant will order your appraisal through a third party company known as an appraisal management company (AMC). They ensure that the appraiser is selected at random and is not influenced at all by any party of the transaction. To reassure the bank that you are not overpaying for the house they require the appraiser to be an impartial party.
2. You don’t attend the appraiser’s inspection as this inspection is done for the benefit of the lender and is hired by the lender to determine the value for them.
3. An appraisal is not an exact science. Five different appraisers can go out to appraise a house and each one will likely have a different value. BUT, on a purchase transaction where neither party is under duress, it is not uncommon for the appraised value to come back at the exact sales price. In speaking with appraisers over the years, I learned that most have the philosophy that the value of something is determined for the most part by what someone is willing to sell something for and what someone is willing to pay for something. When both parties agree to a sales price and neither is under duress (house going into foreclosure, for example), then that is a good indication of what the house is worth. At that point, sales data (sales comparables) are needed to support that value determination. If the sales data in the area doesn’t support the sales price, then the appraisal will likely come in lower. It doesn’t necessarily mean that the house is worth less, it just means that the prices of houses recently sold in the area don’t support the value. If the value does come back low, and perhaps, your real estate agent disagrees, it can be disputed and go through a dispute process. It is rare that the appraisal’s value is overturned or changed.
4. The appraiser may find issues that need to be addressed with the property. Depending on the type of loan, the lender may require the items to be repaired prior to closing. If that happens, a re-inspection fee will be charged and the appraiser will have to go back out to the property to make sure the items have been repaired satisfactorily.