An appraisal is a professional assessment of a property’s value, and it is a critical part of the home-buying (and refinancing) process. Before lenders will agree to finance a home loan, they want to be sure they can recoup their money, should the need arise. If you find a cute little house on the Westside of Ukiah worth $250,000, a lender will not finance a loan for $400,000 because if you default on that loan, they need to be able to sell the house and get their money back.
Since most people don’t make a habit of buying and selling houses, here are a few details you should know.
Who Pays For the Appraisal?
Usually the buyer pays for the appraisal; however, in some sales contracts a buyer may ask the seller to reimburse them for the cost of the appraisal at closing. When refinancing your home, you pay for the appraisal upfront, or sometimes it can be part of the closing costs that can be financed back into your loan.
How Do Appraisers Determine the Value?
Appraisers thoroughly inspect your house to review the square footage, how many bedrooms and bathrooms, the kitchen style, and the overall condition of the house. They also review the property’s location and other factors, including the recent sales price of similar homes in the area. Finally, appraisers must provide a “Condition Code” rating that reflects the integrity and condition of the house, based on a formula provided by the appraisal institute.
Who Gets to See the Appraisal?
On a purchase transaction, buyers should receive a copy of the appraisal at least three days before closing; however, it’s usually given to them a few days after the lender receives it. Neither the seller of the property nor the real estate agent typically receives a copy—unless the buyer provides written authorization that it’s okay to share it. If you are a buyer and you do not receive a copy of the appraisal, ask for it! If you paid for the appraisal you are entitled to a copy.
What If the Value is Lower than Expected?
If you are the seller, and the appraised value is lower than the sale price, you can either back out of the contract (depending upon the wording in the contract), or you can renegotiate the price. The buyer also has the right to renegotiate the sale price. If the appraised value is higher than the sale price, then the buyer gets a good deal and the seller must live with the agreement.
If you are refinancing and you think the value is too low, you have the right to appeal the value, provided you have additional information to help increase the appraisal value (i.e., other comparable properties that have sold or mistakes that the appraiser has made such as the wrong square footage or number of rooms). Appraisers are human; they make mistakes. Review the appraisal carefully, especially if the value is significantly higher or lower than you expected.
What Can You Do Before the Home is Appraised?
While you may not think small cosmetic changes should affect the appraisal, they can. The first impression of a home with good curb appeal can positively influence an appraiser’s (and buyer’s) opinion. Cut overgrown bushes, rake the leaves, pull weeds, and mow the grass. Inside the house, de-clutter the counter tops, cabinets and closets. Vacuum floors, wash tile floors and polish wood floors. If you have made improvements (e.g., new roof, deck, furnace, water heater, etc.), give copies of paid invoices to the appraiser before they make an inspection, especially if the improvements are readily visible.
If you’re wondering whether it’s in your best interest to refinance your home, contact your Realtor. They can help you.
If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com.
Dick Selzer is a real estate broker who has been in the business for more than 40 years.