What is an Appraisal?
Updated: Apr 21, 2020
You may be wondering:
“What is an appraisal anyway and when does it occur?”
If you are, you aren’t alone. I get asked this question all the time after we’ve made an offer on a house, had the inspection done and made it through attorney review. The rest of the process including the appraisal, underwriting and title are a bit fuzzy to most people.
In addition, you might be wondering:
Does the buyer or the seller pay for the appraisal?
Who hires the appraiser?
Who performs the appraisal?
Who pays for the appraiser?
How much does an appraisal cost?
What happens if the appraisal comes in lower than the purchase price of the home?
These are all great questions! For answers click here for a great article that explains appraisals is detail
So what do you do if you’re the buyer paying $400,000 for a home, but the appraisal only comes in at $350,000? Uh oh. You’ve got a problem and this article does a great job of explaining what your options are in that situation.
But what happens if you’re the buyer paying $400,000 for a home and the appraisal value comes in right at the purchase amount price? Is this a good or bad thing? This is definitely a good thing as it means the bank will give you a loan for the full amount of the purchase price.
But what happens when an appraisal comes in high (where the appraisal amount is over the purchase price) and does this happen very often? No, it’s very rare for an appraisal to come in over the purchase price as the bank just needs to know that the property is worth the purchase price so they feel comfortable giving you a loan. Therefore, it’s not common for an appraisal to come in over purchase price. When it does, buyers are often very happy as, essentially, you now have instant equity as we got you a great deal
Occasionally though if your home comes in significantly over the purchase price (say $50K or $100K over the purchase price) it can cause problems, which is explained in this article. In this scenario where a home comes in significantly over the purchase price, sometimes the underwriter will wonder if there was something shady going on which allowed you to get such a great deal.
So, as the buyer, all in all, it’s best when the purchase price comes in at or close to the purchase price.