If you are buying a home with a mortgage the bank will want an appraisal carried out. The buyer pays for this and since the 2008 housing crash these are arranged through a third party management company that finds the appraiser and orders the appraisal so that the appraisal is unbiased and independent.
It is usually ordered after the buyer and seller have signed an agreement of sale and the buyer has finalized applying for a mortgage. The mortgage provider will place the order for the appraisal.
An appraisal is a snapshot of value on a certain day, using past sales created by a licensed appraiser. It gives an unbiased estimate of a property's value and the lender want to make sure the home's value covers the loan amount. Whilst they are supposed to be accurate, two different appraisers may reach different values for various reasons.
Even if you are buying for cash you may want to order an appraisal to ensure you are not overpaying for a property. However, in the market over the last few years many buyers have been willing where they are able to cover any shortfall in the appraisal. Fox example, say you are borrowing $80,000 on a $100,000 home, the lender will want the home to appraise for the $100,000, if it appraises for less they will lend less and the buyer will be required to cover the gap with more cash. An alternative is to re-negotiate if you do not have an appraisal gap addendum in place, or if the agreement of sale allows the buyer can back out of the purchase.
Although the bank requires the appraisal it is the buyer who pays for it, and you will sign paperwork saying you have been given a copy of the appraisal.
Whilst it is generally common for a buyer to attend a home inspection, buyers usually do not attend the appraisal. The listing agent may attend to share with the appraiser any relevant information such as the home receiving multiple offers, any updates that are recent and what comparable sales they used for pricing the home.
During the appraisal, the appraiser measures the home, takes photos of the home and will then generate a report based on comparable past sales, these are generally limited to the same township, and are preferred to have been in the last 6 months unless there are few sales, or the property is something unusual when the distance and the dates may be longer.
The value may be different due to different comparable sales being used, the appraiser not bearing in mind rising prices for past sales and making no adjustments for this. Value can be somewhat subjective. A low appraisal can be challenged, but it often will not affect the value unless a glaring mistake has been made.
Generally an appraisal can take 1-2 weeks from being ordered to being completed. As a buyer you may want to ensure the appraiser is familiar with the area, and has a good knowledge of the area sales.
If you have any questions about appraisals or real estate in general feel free to reach out to Nick Vandekar, Selling the Main Line and Chester County with Realty ONE Group Advocates, office 484-237-2055, cell or text 610-203-4543, or Nick@VandekarTeam.com.
You may be interested in reading this post about appraisals from a seller's perspective Why is an appraiser coming to my home?
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