You’ve spent months looking and finally settled on the house of your dreams. The seller even accepted your offer! Congrats! It’s not *quite* time to break out the bubbly yet, though! So many home buyers and sellers have questions about the appraisal process, we wanted to make sure we addressed it on our blog! For more tips on how to buy your first home, click here!
What’s an Appraisal?
The appraisal is basically your lender making sure that the home is worth what you’re offering (in case they need to get their money back!) The lender uses an unbiased third-party to examine the home and any improvements the seller has made, as well as how it compares with similar properties that have sold in your area within the past six months.
What Does It Involve?
Appraisers take quite a few details into account when determining their valuation of your dream home! They’ll be looking very closely at the square footage, condition of the home, any improvements the seller has made and any factors that might negatively affect the home’s value. They’re not home inspectors so they won’t be looking over every little detail—they’re just getting a general idea of what the home’s worth.
What Happens Next?
Once the appraiser is finished, you’ll get a copy of the report. The fee for the appraisal is typically included in your closing costs—around $300 to $400. If the appraised value is higher than your sales price, you’re in the clear! You’ll have instant equity in the home and your lender will feel confident in loaning you the money needed to purchase it. It’s when the appraised value comes in lower than the sales price that you’ll run into trouble. The lender won’t pony up more than the home is worth so the seller either has to lower the sales price or the buyer needs to come up with the remainder out of pocket.
If lowering the price or coughing up the difference won’t work, it’s not the end of the world! You can choose to walk away from the contract and have your earnest money deposit returned or even pay for another appraisal. Keep in mind: not being able to buy your “dream house” because of a low appraisal is actually a good thing—you won’t be overpaying for a house that’s not worth it!