Understanding The Appraisal Process
One of the most critical aspects of getting a mortgage is having an appraisal performed to confirm the sales price for the lender. An appraisal is a professional estimate of the value of the property that you’re hoping to purchase.
Why Do Lenders Insist On An Appraisal?
Lenders always require a home appraisal before they’ll issue a mortgage because they want to protect their investments. If the actual market value of a property is lower than the sales price and if the buyer defaults on the mortgage, the lender won’t be able to sell the property for enough money to cover the loan.
You might receive a property inspection waiver (PIW) if you’re refinancing and the loan amount is significantly less than the estimated value of the home, but don’t count on it. Even if your loan-to-value ratio is very low, PIWs are rarely granted.
Who Pays For The Appraisal?
The buyers have to pay for the appraisal and you’ll mostly like have to arrange for it to be done as well. This is the case even though its purpose is to protect the lender, not you. The report is usually sent directly to the lender. You can request that a copy is sent to you as well. This generally doesn’t happen automatically. You have to ask.
What Is The Cost?
The average cost of a professional appraisal is from $300 to $400 as of 2018. It can depend on your property type and location. More expensive homes or homes that have more than one unit will typically cost more. The appraisal process usually takes anywhere from three to 10 business days.
What If The Property Appraises For Less Than The Sales Price?
When the lender is deciding your loan amount as a percentage of the property price, it will choose either the sales price or the appraised value, whichever is less.
You have a few options if the appraisal comes in low. If you wrote your offer contract to include a contingency that requires that the property is valued at the selling price or higher, you can walk away from the deal.
You might also try to negotiate with the seller to reduce the sales price. If you really want the property, a third alternative might be to put more money down to cover the difference between the appraised value and the sales price.