Home appraisals are an important step in the home selling process that occur once homes are under contract.  Having a home appraisal completed is one of the last steps before going to closing.  It’s important for sellers and buyers to understand what a home appraisal is and how it can affect the selling process.

What is a home appraisal?

A home appraisal is the lending bank’s estimate of the value of a home.  It  is completed by the buyer’s lender.  The lender hires an outside third party appraisal company to examine the details of a home (square footage, acreage, number of bedrooms, ect.) and determine a value. It is usually a requirement from the bank before they will provide funds for the purchase of the home. The home appraisal lets the bank know that it is not lending out more money than the home is worth.

Who does the home appraisal? 

The appraisal is completed by an appraiser; an appraiser is an independent and licensed person not connected to the buyers, sellers, or bank and is trained in determining the values of properties.  Appraisers gather information about the home (number of bedrooms/bathrooms, square footage, additions, ect) and use sold comparables (looking at similar homes in the neighborhood that recently sold) to determine an estimated value of the home.  They also look for safety hazards that could detract from the home’s value.  Certain loan programs, like VA or FHA, may have more specific standards.

When does a home appraisal happen?  Who pays for it? 

The buyer’s mortgage lender will order an appraisal once the buyer and seller are under contract.  The buyers typically pay for the appraisal.  Once an appraiser visits the property, it usually takes at least a week for the report (if not more) to be written. 

Why do I need a home appraisal? 

An appraisal protects everyone involved in the transaction.  It makes sure that buyers are not over paying for a home and that the bank is not lending more money than what a home is worth.  Banks will not lend money to a buyer without completing an appraisal. If a buyer is purchasing a home with cash, then they may not need an appraisal.

What happens if the home appraisal is higher than the selling price? 

A home buyer has instant equity if the appraisal comes in higher than the sell price.  You can proceed with the home buying process.

What happens if the home appraisal is lower than the selling price? 

With an experienced Realtor®, appraisals that are lower than the sell price are rare, but they do happen.  In this case, the bank will not lend the buyer all the money necessary to purchase the home.  Sellers have some options; they can sell the home at the appraisal price, ask the buyer to bring the difference between the selling price and appraisal out of pocket, or put the home back on the market.