Step 21: The Appraisal

Hooray! If you are at this step in the home buying process, that means you have successfully made it passed the inspection period.

What is an appraisal? An appraisal is the estimate of a property’s value. This value is based on such factors such as location, amenities, structural condition and recent sales of local properties that are similar to the home being appraised. The appraisal is conducted because your mortgage lender would like to know whether the house you are interested in buying is worth the amount that you are willing to spend.

Your mortgage lender will order the appraisal and will be asking for your credit card information at some point soon after to pay for the appraisal. It can typically cost anywhere from $350-$500 and is considered part of your closings costs but is paid upfront.

Tips about the appraisal:

You the buyer are not required to attend
Once the appraisal has been paid for, it typically takes about a week before the appraiser comes out to conduct it. Then about another week for the report to be written. Expect the appraisal period to be about 2 weeks in total.
When the report is finished being written by the appraiser, it is then given to your mortgage lender. Your mortgage lender will be in touch with you shortly after reviewing the document and let you know if the property came in below, at, or above purchase price.
If the property appraised at the purchase price, nothing further needs to happen and closing can proceed as planned.
If the property appraised above purchase price, that means you have scored a deal! This means you will also have instant equity in your home the day you move in.
If the property appraised for less than the purchase price, then we have an issue. This means the bank will only give you a loan for the appraised value. In this case we can go back to the sellers and negotiate the purchase price down, ideally to the appraised price. If the sellers will not come down to the appraisal price, then you have three options: Bring all of the additional funds to the closing table. For example, if the purchase price is $320,000 but the home only appraised for $310,000 you need to decide if you can put down an extra $10,000 on top of your down payment and closing costs. The second option is asking the seller not to come down completely to the appraised price, but to meet in the middle. Like in the previous example if the purchase price is $320,000 and the appraised value is $310,000 you can ask them to come down to $315,000 and you would only have to bring $5000 extra to the table instead of $10,000. If none of the options above work out, you could walk away at this point and get your earnest money back.