Somewhere between an accepted offer and closing day, your lender will typically order an appraisal. It is one of the key checkpoints in the mortgage process, and understanding how it works can help you prepare and avoid surprises, whether you are buying, selling or refinancing.
An appraisal is an independent opinion of a home’s market value, prepared by a licensed or certified appraiser. Lenders use it to confirm that the property is worth enough to support the loan amount. If you default, the home is the collateral, so the lender needs confidence in its value.
Appraisers are required to be impartial. They are not working for the buyer or the seller, and lenders cannot pressure them to hit a certain number. The buyer usually pays for the appraisal as part of closing costs, unless the parties negotiate something different. The cost depends on the size, type and location of the property.
These two are easy to confuse. A home inspection looks closely at the condition of the house so you know what needs repair. An appraisal focuses on value. An appraiser will note major condition problems, but they are not crawling into the attic or testing every outlet. You typically need both.
Some loan programs, such as FHA and VA loans, have specific property standards. If the appraiser finds certain problems, they may need to be fixed before the loan can close.
Permanent improvements can add value. Examples include renovated kitchens and baths, quality flooring, a pool, an accessory dwelling or in-law suite, and energy-efficient upgrades. Keep in mind that not every upgrade adds dollar-for-dollar value, and very personalized features may not be valued as highly as you hope.
Recent sales of similar nearby homes, often called comps, are a major driver of the final number. The appraiser adjusts for differences such as an extra bathroom, a garage or a larger lot.
Appraisers also consider whether values in the area are rising, stable or declining, and how quickly homes are selling.
A low appraisal does not have to end your purchase. Depending on your contract and situation, you may be able to:
The site visit itself is usually fairly quick, often an hour or two depending on the size of the home. Writing the report takes longer, since the appraiser researches comparable sales and market data. Timing can stretch during busy seasons or in rural areas with fewer appraisers, so it helps to keep the home accessible and respond quickly if the appraiser has questions. Once your lender receives the report, you are entitled to a copy.
If you are thinking about a refinance or a HELOC, your home’s value will play a big role in what you can access.
Have questions about the appraisal process? A FLO Mortgage loan officer can explain what to expect for your loan. Get in touch with our team today.
A FLO Mortgage loan officer can walk through your options, run real numbers and help you choose a loan that fits.
This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.
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