What is an Appraisal?
If you are a home buyer or someone selling your property, you may have heard your Realtor talking about appraisal phase of your real estate transaction. Let’s break down appraisals- what they are, when they’re done, and their impact on the home buying process.
What is an Appraisal?
An appraisal is done on a property by a certified appraiser to verify that the home is valued at the purchase price the home buyer intends to purchase the home for.
When is an Appraisal Needed?
An appraisal on a home is only needed if the home buyer is using a loan to purchase the home (IE the homebuyer is not paying for the property in cash).
Who Orders the Appraisal?
The homebuyer’s lender (IE the entity giving the homebuyer the loan to purchase the property) will order the appraisal to be done after the offer on the home is accepted. Appraisals typically take anywhere from 7-10 business days to be completed.
How Will I Know the Results of the Appraisal?
Your real estate agent will notify you about the results of your appraisal.
What if the Property Doesn’t Appraise for the Purchase Price?
If the property doesn’t appraise for the purchase price, there are a few routes that can be taken:
1) The buyer and seller can agree to split the difference
2) The homebuyer can pay for the difference in cash.
3) The seller can pay for the difference in cash.
4) The seller can agree to lower the purchase price down to the appraised value amount.
If the buyer and seller cannot agree on which route they will take, the agreement can be dissolved and be considered null and void.
What is an Appraisal Gap?
In this extreme Seller’s Market, you may have heard your Realtor talk about using an “Appraisal Gap” to strengthen a homebuyers offer. Essentially, an appraisal gap is an addendum that is submitted with a homebuyer’s offer to give the offer more strength, credibility, and is ultimately extremely desirable for a seller. Essentially it indicates that if in the event the property doesn’t appraise for the price the home buyer has offered for the property, the homebuyer agrees to pay X amount to cover the gap between the appraised price and the purchase price. FOR EXAMPLE: say a homebuyer submits an offer to purchase a home for $500,000, however the homebuyer’s lender appraises the property for $490,000 which is ultimately the highest amount they’ll lend to the homebuyer on the property. The homebuyer has the ability to state in an appraisal gap addendum that they are willing to pay X amount of that $10,000 gap in the event the property doesn’t appraise for the purchase price.
REMEMBER: Appraisals only impact those who are using a loan to purchase a home! If someone purchases a home in CASH, there is no appraisal!
