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When you go through the home-buying process and before a lender signs off on the final paperwork, it’s important that your home is appraised for value. The idea is to make sure that your home is worth what you’re paying for it. Many lenders won’t give you a loan that amounts to more than what the home is worth.
An appraisal can help you avoid buying a home that’s overpriced by a large margin. If you’re selling a home, the appraisal can help you make sure that you get your asking price — as long as it’s close to the appraisal. Here’s what you should know about appraisals:
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1. Appraisals Aren’t Home Inspections
The home appraisal isn’t the same thing as a home inspection. An inspector is looking for structural problems and safety issues. The inspector finds things that need to be fixed if you don’t want to run into bigger problems down the road.
An appraisal, on the other hand, is about the value of the home. An appraiser looks at upgrades, home condition, size, and other factors, and considers them in relation to the surrounding homes. An appraiser might note problems, but ultimately it’s about determining the value of the home.
When you’re selling, it’s a good idea to make sure you clean your home and mow the grass when you know the appraiser is coming. In many cases, the home is likely to fall into a range, like $200,000 to $230,000. If the home isn’t clean, or if the curb appeal isn’t there, the home will appraise for closer to the low end of the range.
2. The Seller Usually Pays for the Appraisal
An appraisal costs money — sometimes up to $500. However, the seller is usually the one who pays for it. The seller usually pays all of the closing costs, including the appraisal. So, even though the appraisal can cost between $200 and $500 (or more), you don’t have to pay for it.
When you are selling, you need to be prepared to pay. However, if you are selling your home for more than you bought it for, you might end up with enough money to cover the costs.
3. How Long Does an Appraisal Take?
The appraisal process can take up to a couple of weeks. The appraiser has to be scheduled, and he or she will come to the house. An appraiser takes pictures, documents the features of the house, and determines how its value stacks up when compared to other homes in the neighborhood.
While the appraiser might only spend a couple of hours at the house, it might take longer for the underwriters to review the report. They can ask for more information, documentation, and even more pictures.
In some cases, the appraisal might be faster, only taking a couple of days. However, there’s not a lot you can do to speed things along, whether you’re the buyer or the seller. Once it starts you just have to wait.
4. Make Sure Your Agreement Includes a Clause about the Appraisal
Finally, if you’re buying, make sure your agreement includes a clause about the appraisal. You want the purchase agreement to stipulate that the sale is off if the home comes in too far below the purchase price. A lender might provide some leeway if you’re off by a relatively small amount. However, if it’s more than a few thousand dollars, you might have to end the sale if the seller won’t bring the price down.
Understanding how appraisals work is an important part of making sure that you get the best bang for your buck when you buy or sell, so pay attention.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
