Tips for sellers - the appraisal

By
Real Estate Agent with 406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) 10301213186

Your home has been under contract for a week or so, and you are notified that the mortgage appraisal will be conducted shortly. What is an appraisal? How is it different than a home inspection? Why is this important? Following are the answers.

 

What's the difference between a home inspection and a mortgage appraisal?

 

The buyers already conducted a home inspection. So why do you have to let someone else in your home? What's the difference? Why can't the buyers use the home inspection?

 

  • Inspection

    A home inspector is hired by the buyer to go over the home with a fine tooth comb. He is expected to find any and all issues that either are or may be a problem in the future.  An inspector usually spends about 2-3 hours in the home. He or she runs water to check for leaks, climbs up in the attic and out on the roof, may perform water tests, radon tests and pest inspections, checks landscape grading and siding and ... well, he basically checks everything. The results are used by the buyer to determine whether to move forward with the purchase or whether to ask you to fix safety or structural issues. The inspector is not hired to tell a buyer what to do, but to point out pertinent facts.

  • Appraisal

    The mortgage appraiser is paid by the buyer (in NY) as part of the mortgage process. The appraiser works for the bank, and he is responsible to do two major things. He must determine the bank's opinion of market value for the home, and determine whether the specific mortgage company/mortgage type will "approve" the purchase of the home.  The appraiser usually spends no more than 1/2 hour at the home and takes a lot of pictures. They focus only on a certain set of issues the bank has determined to be critical.

 
When is a mortgage appraisal done?

Tips for sellers - the appraisalAfter a contract for sale is signed and submitted to the mortgage company, the mortgage application process gets underway.  Usually between one to two weeks after formal mortgage application, the buyer's agent will receive a call from the mortgage appraiser asking to set up an appointment. The buyer agent will contact your agent to ensure the time is good for you, and then the appointment is set and mortgage appraisal completed.

 
What happens after the mortgage appraisal is completed?

The appraiser will submit his or her report to the bank. There are about four huge stepping stones in any home purchase. They are the negotiation/offer process, the inspection, the contract signing, the mortgage approval and as part of that, the appraisal.  When the appraisal is submitted, the bank will then have information they require regarding the market value of the home, and the viability of the property condition.  The underwriting department will share that information with the buyer and decisions will need to be made about next steps.

 
Why is the appraisal important?
Market Value:

If the appraisal indicates the market value of the home is less than the accepted offer price of the home, the mortgage company will only provide a mortgage based on the appraisal price, not the accepted price.  For example, let's say the negotiated price was $250K. The appraised market value is only $240K, and the buyer was looking for 90% financing.  The buyer was originally expecting a mortgage in the amount of $225K ($250K times 90%), but after the appraisal, the bank will only provide a mortage of $216K ($240K times 90%).  The difference of $9K needs to be made up somewhere. Either you will reduce the price you will accept, the buyer will come up with additional funding, you and the buyer will both contribute to the shortfall, or the deal falls apart.   A low appraisal value will impact the deal in some way.

 
Home Condition:

Another aspect of the mortgage appraisal is the condition of the home. Some types of mortgages have different requirements regarding the condition of a home.  For example, an FHA mortgage is dependent on there being no chipping paint of any kind.  If there IS chipping paint on the outside or inside of the home, the appraiser will indicate this on their report to the underwriting department.  The underwriting department will then make the mortgage contingent upon getting the paint chip issue fixed. Again, these issues could be show-stoppers if the buyer and seller cannot come to agreement on who/how items will be fixed.  Assuming the issue is fixed, the bank will need to send the appraiser out again to ensure the work was done to their satisfaction.  This could add weeks to the process.

 
What if the appraisal seems wrong?

Is there anything that can be done if the appraisal value or conditions don't seem correct? Possibly, but because the report was paid for by the buyer, any efforts to request further review would have to be started by the buyer. Once the buyer has the appraisal report in hand, they can provide to their agent who can review the document for any missing data. For example, appraisal reports analyze recent sales. The appraiser may have missed an appropriate recent sale, or perhaps did not adjust the sales prices for specific amenities of your home. Perhaps the appraiser was not an expert on the neighborhood where your home is located.

 

If there are errors in the appraisal report, the concerns would have to be addressed with the mortgage professional to see how that particular appraisal could be challenged. The underwriting department could contact the appraiser for clarification, and/or possible changes. The result of that review might be that no changes will be made, or that indeed there was an issue and it will be addressed. Alternatively a new appraisal could be ordered, although this is an additional cost that would have to be covered by the buyer or seller (or both).

 

The important point is that if the appraisal value comes in lower than the contracted sales price, there may still be ways to address the shortfall, if indeed there were mistakes in the analysis.

 

In summary

The mortgage appraisal is one of the most important steps required prior to getting to the closing table.  Buyers, sellers, and their real estate professionals wait with baited breath for the results. And they all sigh in relief when the appraisal comes back with both thumbs up.

 

If you have any questions about any part of the home selling process, feel free to contact me on 914-419-0270 or email me at kat@thehousekat.com!

 

For more seller related tips, click here.

 

Originally published at thehousekat.com.

Posted by

 

Kat Palmiotti, The House Kat

Licensed Associate Broker, CBR®

Grand Lux Realty, Inc.

428 Main Street

Armonk, NY 10504 *

* still supporting Monroe NY, Orange & Rockland counties.

 

914-419-0270 (cell)

email: kat@thehousekat.com

www.thehousekat.com

facebook    Kat's Homes

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Home Selling

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainmaker
3,171,739
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Good Morning Kat,  Excellent blog that sellers and buyers should know about.  Hope you have a great day!

 

Jul 30, 2019 06:15 AM #9
Ambassador
3,103,672
Paul S. Henderson, REALTOR®, CRS
RE/MAX Northwest. - Tacoma, WA
Tacoma Washington Agent/Broker & Market Authority!

 Thank you for this excellent summary of the selling process and what comes where. Each state has subtle differences but this is a great summary 🤓 Kat Palmiotti 

Jul 30, 2019 06:59 AM #10
Rainmaker
2,550,632
Brian England
Arizona Focus Realty - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

This is great information and very well put together.  This is a process that the consumer is often confused by.

Jul 30, 2019 07:28 AM #11
Rainmaker
2,020,368
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Southlake, TX
Selling Homes Changing Lives

Kat Palmiotti - Your knowledge and expertise shine brightly. The mortgage appraisal is critical. You recapitulated the distinctions between a home inspection and appraiser inspection very well with explicit explanation!

Jul 30, 2019 08:50 AM #12
Rainmaker
1,437,491
Kat Palmiotti
406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) - Kalispell, MT
The House Kat

Thank you Will Hamm - I hope your day went well!

Yes, Paul S. Henderson, REALTOR®, CRS - Each state does have differences!

Thank you Brian England - there are many real estate related issues that become confusing!

 

Jul 30, 2019 12:30 PM #13
Rainmaker
1,437,491
Kat Palmiotti
406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) - Kalispell, MT
The House Kat

Patricia Feager, MBA, CRS, GRI,MRP - You are too kind!

Jul 30, 2019 12:30 PM #14
Rainmaker
3,255,302
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce

Great explanation Kat...thoughj I am convinced that there are mirrors involved with some appraisals we have seen since the Appraiser has the offer aws a "tool" for preparing it.

Aug 02, 2019 05:16 AM #15
Rainmaker
1,219,673
Sheri Sperry - MCNE®
Coldwell Banker Residential Brokerage - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Kat Palmiotti - Good analysis of the issues involved during the due diligence phase of the contract. Buyers and sellers need to understand the options.

Aug 02, 2019 10:50 AM #16
Rainmaker
2,498,928
Rebecca Gaujot, Realtor®
Vision Quest Realty - Lewisburg, WV
Lewisburg WV, the go to agent for all real estate

The appraisal is a very important step in the mortgage process. Great job on the explanation.

Aug 05, 2019 01:31 PM #17
Rainmaker
1,437,491
Kat Palmiotti
406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) - Kalispell, MT
The House Kat

Sally K. & David L. Hanson - Sometimes appraisals get a "huh?" when they are received. 

Sheri Sperry - MCNE® - Thank you - yes, buyers and sellers need to understand what options they may have.

Thank you Rebecca Gaujot, Realtor® for your comment!

Aug 06, 2019 02:28 AM #18
Rainmaker
1,305,044
Wayne and Jean Marie Zuhl
Samsel & Associates - Clark, NJ
The Last Names You'll Ever Need in Real Estate

Good morning Kat - sellers have to juggle a lot of terms, inspections, etc, and your guide makes it easier. Great post!

Aug 06, 2019 05:26 AM #19
Rainmaker
4,083,910
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Kat, great information for buyers, as some do not understand the difference between the appraisal and inspection.

Aug 06, 2019 07:11 AM #20
Rainmaker
1,305,044
Wayne and Jean Marie Zuhl
Samsel & Associates - Clark, NJ
The Last Names You'll Ever Need in Real Estate

Great info - it can be very confusing for buyers and you've helped clarify.

Aug 12, 2019 07:02 AM #21
Rainmaker
1,437,491
Kat Palmiotti
406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) - Kalispell, MT
The House Kat

Wayne and Jean Marie Zuhl - Thank you for your comment!

Thank you Joan Cox - I agree, some people don't know the difference between an appraisal and inspection.

Aug 13, 2019 02:47 AM #22
Rainmaker
3,097,287
Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Great post, Kat. I've found that many home buyers and sellers don't fully understand how the appraisal process works and what the implications are when a home fails to appraise at contract price.

Aug 23, 2019 06:17 AM #23
Rainmaker
1,437,491
Kat Palmiotti
406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) - Kalispell, MT
The House Kat

Thank you Nina Hollander - It can be confusing to those who haven't dealt with it before.

Aug 23, 2019 06:50 PM #24
Rainmaker
370,622
Joe Daniels, Broker, Appraiser, Realtor(R),
Personal Service Realty - Jacksonville, FL

Kat,

As a broker who will not take an overpriced listing, since I am an appraiser also, I loose a lot of listings to the agents that will buy a listing by listing it for what the seller wants. While, just like agents, appraisers are not perfect, we have to depend on the "historic data" being the closed sales data in the MLS that agents have entered. My biggest complaint is the agents that list minimal information and maybe only 1 picture on their listing, then never answer the phone or return my calls for more information.  The more information and pictures an agent can put in the MLS the more an appraiser has to go by.  And the biggest complaint as a broker and an appraiser is agents that dont \answer their phones or return calls. Then they are usually the biggest complainers if their sale doesn't appraise at sales price.

Aug 25, 2019 10:03 PM #25
Rainmaker
1,437,491
Kat Palmiotti
406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) - Kalispell, MT
The House Kat

Joe Daniels, Broker, Appraiser, Realtor(R), - I agree about the lack of information on listings - that doesn't help anyone, including the seller! As for returning phone calls, that should be a "must" for every professional. Thank you for commenting!

Aug 26, 2019 06:40 AM #26
Rainer
42,775
Leanne Smith
Dirt Road Real Estate - Golden Valley, AZ
Relocation to NW AZ with elbow room & more freedom

The Appraisal Foundation has a guide that may help to better understand the appraisal process along with some other information.  Thanks Kat Palmiotti for showcasing this very inportant and often misunderstood issue.

Aug 26, 2019 06:50 AM #27
Rainmaker
1,437,491
Kat Palmiotti
406-270-3667 (MT), 914-419-0270 (NY), Broker in NY with Grand Lux Realty and in MT with (coming soon!) - Kalispell, MT
The House Kat

Good morning Leanne Smith and thank you for your input and suggestion for more information. The more information that is available, the better!

Aug 26, 2019 06:53 AM #28
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
1,437,491

Kat Palmiotti

The House Kat
Ask me a question
*
*
*
*
Spam prevention