So, you’ve found the house you love, put in a good offer, and it was accepted. But don’t break out the moving boxes just yet.
If you’ve applied for a mortgage, your future home still needs to undergo a home appraisal. Read further to learn more about appraisals and how you can benefit from them.
What is it?
A home appraisal is an estimate of the home’s value. Just because you and the seller have agreed on a price doesn’t mean it’s a done deal.
If you’ve applied for a mortgage, your lender needs to be on board. After all, it’s the lender’s real estate investment as well.
To finalize a mortgage, you’ll need to get a home appraisal. The home in question will also serve as collateral for your lender.
If for some reason you end up not being able to make your mortgage payments, the lender will foreclose and then, sell the property to recoup its costs.
What’s the process?
The process is like getting comps – recently sold houses used to determine the value of a home – the appraiser dives deeper to determine the exact value.
They will investigate the condition, square footage, location, and any additions or renovations. From there, they will appraise the home and determine its value.
An appraiser is trained to be unbiased. They’re sent out to determine if the home is worth what you’re planning to pay.
They will pay particular attention to problems with the foundation, roof, etc. It will not include the quality and condition of the appliances, plumbing, flooring, and electrical system.
Sometimes, they will evaluate the current market in the neighborhood to help determine its value.
Who covers the cost?
Usually, the lender or financing organization will hire the appraiser.
Because it’s in the lender’s best interest to get a good home appraisal, the lender will have a list of reputable pros to appraise the home.
Unless the contract specifies otherwise, whoever takes out the mortgage pays for the home appraisal. They will then pay this fee in the closing costs.
If a seller is motivated, they may pay for the home appraisal themselves to back their asking price. Which, in return, will benefit the buyer by reducing their closing costs.
The appraiser doesn’t work for you, only your lender
As the buyer, you’ll be paying for the home appraisal. In most cases, the fee is included in your closing costs.
However, just because you’re paying for it doesn’t mean you’re the client. This ensures that the appraisers remain ethical.
But remember, the home appraisal is meant to protect you (and the lender) from a bad purchase.
For example, it’s generally fine if the appraisal comes in higher than asking price. But if it comes in lower, things can get tricky.
This is because your lender won’t give out more money than the appraised price.
If you decide you still want the house, you’ll have to cover the additional cost some way, somehow.
All in all, once the appraisal and home inspection are done, you’re ready to move to close without another nerve-wracking step in the process.