The appraisal is one of the “necessary evils” in real estate. If you’re getting a loan, you will also be getting an appraisal — and it’s best to understand all that goes on, and why it means something to you.
What it is and Why it’s Necessary
The real estate appraisal is an independent third-party determination of value, ordered by a bank. It does not formally determine actual market value, rather it ensures that the buyer is not overpaying for the home based on recent sales in the area. Banks require one for the buyer when loaning them money.
When the Real Estate Appraisal Gets Ordered
The appraisal normally gets ordered immediately after the attorney review period is through, and the inspection has been completed. The buyer is the one paying for the appraisal (normally $450-$600), and because most buyers want to get a home inspected and those details worked out, they wait to order it.
What Can Go Wrong Along the Way
The biggest issue is if one comes in below the contract price. This is a hassle for both parties, but much more so for the seller. If an appraisal comes in low, the two parties must find a solution that both can agree with. The buyer has the upper hand, normally saying “That’s what the home appraised for, so that’s what I’ll pay”, which is a tough argument for a seller to counter. It becomes a second round of negotiations, with the deal dying unless they can find a way to make it work out.
The bank will not have another one ordered just because one or both parties don’t like the first one — whatever it appraised for is what the bank will use as the basis for their loan. And not once in all my time have I seen an appraiser say they were wrong, never — so don’t expect them to change their valuation either. The only way a new appraisal can be ordered is if an entirely different bank is used for the loan, easier said than done.
The Seller’s Perspective
This is definitely a time when “No news is good news” … If the appraisal is done and you don’t hear another word about it, that’s a good thing. You will not find out what it appraised for, as that is information only the lender and the buyer are privy to. Comps and other market data should always be provided that can help aid the appraiser in understanding the value and hopefully determining the home’s worth at the contract price.
The Buyer’s Perspective
Yes, the buyer pays for the appraisal, but they do get some benefit out of it as well. It is one of the important “checks and balances” that happen throughout the contract, verifying that they are not paying too much for the home. And if the home appraises above the contract price, BAM! That’s built-in equity!
The Overall Timeline
What takes the most time in the entire process is the bank actually going through the mortgage approval process — something that they can’t go “full steam ahead” with until the appraisal is received back. Here’s how it often works out:
- Inspection and attorney review can take up to two weeks or more
- Appraisal gets ordered at end of attorney review, usually takes 2 – 3 business days to get an appraiser out
- Appraiser visits the property, but still has substantial work to do
- Another 2 – 3 days are often needed for appraiser to finish and send to the bank
- Thus … it can often be 7 – 10 days between when it’s ordered and when it is received back completed by the bank
Every contract has important dates and contingencies included in it. It’s vital that your agent and attorney have a thorough grasp of all the moving parts, and how to make sure you get to the finish line with the best possible outcome.