What does an appraiser do in a home purchase?

Home appraiser

What does an appraiser do any how does it fit into the home purchasing process?

We’ve been talking about the “team” you will have at your side when you purchase a home. Your Realtor is your coach and gets you on the field by helping you find the right home and negotiating an accepted purchase contract; then monitors performance to make sure everyone is playing their position to their full potential (and obligation). Your teammates will be the title/escrow officer, your lender (if you’re financing), your home inspectors(s), and the appraiser. Many people get the home inspector and the appraiser confused, probably because they both conduct an “inspection”. While the home inspector is looking at the condition of the home and its various components, the appraiser is assessing value.

An appraisal is a lender requirement. The bank or investors who are lending you the money for your mortgage want to ensure that the value of the home is worth at least as much as the agreed upon purchase price. They do that by randomly assigning the property to be evaluated by a licensed appraiser who will go to the home, see all of the features of the home which will be compared to recently sold properties that are similar to the subject – the home you are purchasing. Things like a premium lot, pool, backing to a road, lot size, updates, age of appliances, etc. will all be accounted for in determining the true value of the home. The home will also be measured by the appraiser to make sure that the square footage reported is accurate. Within two weeks of the appraisal being ordered, a report will be returned to the lender and you will be notified as to whether or not the home appraised for above, below or at the purchase price.

What if the appraisal comes in under the purchase price?

The Arizona Association of Realtors purchase contract addresses the possibility of a low appraisal. The buyer has the right to cancel the contract if the appraisal comes in low. If they choose to continue with the sale, the buyer will have to come up with the additional cash to cover the gap (the lender will not finance “empty value”); or, the buyers, though their Realtor, can attempt to convince the seller to meet the appraise value by reducing the purchase price, or meeting the buyer half-way, in essence, splitting the difference. If the seller won’t budge, the buyer can then cancel and have their earnest money returned.

What if the appraisal comes in at the purchase price?

Nothing happens in that case. The buyer and seller must continue with the purchase per the terms of the purchase contract.

What if the appraisal comes in over the purchase price? 

If that home appraises for more than you are paying for it, you high five your Realtor and do the happy dance! You have instant equity which hopefully will only grow from there with each mortgage payment you make and through market appreciation.

What if I’m paying cash for a home?

An appraisal is not necessary for a cash purchase and in fact, the appraisal contingency is waived in a cash deal. UNLESS, your agent negotiates an appraisal contingency for a cash deal through the use of an additional clause addendum. There are situations where a cash buyer may want to have an appraisal done and make the purchase contingent upon the appraised value meeting the purchase price. Make sure you discuss this with your agent if that is something that you would like to pursue.

What does an appraisal cost?

In many cases, the appraisal is an out of pocket expense for you and the fee is collected prior to closing. The appraisal fee for a typical tract home in Arizona will cost approximately $450. Your agent will advise you as to the best time for your lender to order the appraisal to protect your out-of-pocket funds to the extent possible.

 

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