Step 23 To Selling a Home: The Appraisal
If the buyer of your home is obtaining a mortgage loan to purchase your home, then the lender will require that an appraisal be conducted.
So what is an appraisal?
For a very detailed look at the appraisal process, for you as a seller, click here to read this blog post!
Who orders the appraisal?
The buyer’s mortgage lender orders the appraisal, but the buyer pays for it.
When does the appraisal occur?
Usually during regular weekday hours.
Do I need to attend the appraisal?
No, you do not need to attend the appraisal. In fact, we recommend that you not be present; instead, we recommend that you treat it like a showing -- make sure your house looks showing-ready, as you would for the buyer. If you have already started packing, just make sure that the rooms are as neat as possible. We’ll meet the appraiser at your home and walk him/her through the property. We’ll go over the comps and state our case as to why we think the purchase price is justified. In rare case that we cannot meet the appraiser or that the appraiser asks that we do not (i.e., due to COVID-19), we will have a lengthy conversation with him or her and send our Appraiser's Packet -- your pre-listing appraisal, the comparable sales we used to price your home, a detailed list of your homes features and upgrades, etc.
How long does the appraisal take?
Usually about 30 to 45 minutes.
How long until we know if the property appraised for the purchase price?
Usually, about a week to 10 days after the appraisal appointment, we will get word from the buyer's agent as to the result of the appraisal. Once the report is written, the buyer’s mortgage lender forwards it to the buyer to let the buyer know whether the property appraised at the purchase price, below the purchase price, or above the purchase price. Since the buyer owns the appraisal, we will not be privy to the appraised value and likely will not see the report unless the appraisal value comes in below the agreed-upon contract price.
If the property appraised at the purchase price, nothing further needs to be done and the closing process will proceed forward as planned. If the property appraised for less than the purchase price, we have a problem. The bank will only give the buyer a loan for the appraised value, and an appraisal value below the contract purchase price means we need to renegotiate. In the event of a low appraisal, we will have an opportunity to review the appraisal at this time, and if we see any errors or if we feel the appraiser has missed an important comparable sale, we will have a chance to refute the appraisal and ask for a reconsideration on the part of the appraiser (the appraiser does not need to agree to revisit the report unless there is an actual error).
If the appraiser does not revisit the report/value (or if he does and it still comes in low), then the buyer will likely come back to us and ask to lower the purchase price down to the appraisal price. If we agree to the appraisal value, we all sign off on the new price and move forward toward closing. If we say no, then the buyer has to either come up with cash at closing for the difference between the appraisal price and the purchase price (many buyers can’t or won’t want to do that) or they have the right to terminate the contract, get their earnest money back, and walk away. The buyer and seller do, however, have the right to renegotiate any and all terms to try to come to an agreement, and if the buyer is open to each party giving a little, it may work out. It's not always an all-or-nothing approach; every transaction is different.
Here's an example: if the purchase price is $500,000, but the appraisal only comes in at $475,000, then the buyer will ask us to reduce the price to $475,000. If we will only agree to lower the price to $480,000, then the buyer has to decide if he or she is going to bring an extra $5,000 to closing in addition to their downpayment and closing costs or walk away from the deal. If the buyer walks away, his or her earnest money is refunded, as they are protected by the appraisal contingency, and we go back on the market.