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What are the Steps in a Home Appraisal?

Buying a home is a all about following a series of step-by-step instructions. It takes time and can be stressful, but the payoff of owning your own home is totally worth it. One of the last steps to buying a home is the appraisal. While it may seem arduous, it is an imperative part of your due diligence as a home buyer.

A home appraisal protects you from overpaying on a property, and to ensure that you are getting a good deal; as well as verifying a sound investment on the lender’s part. This is different than a home inspection. This article’s goal is to break down the steps of the home appraisal process. In practice, consult with your real estate agent and lender about specific steps for buying your home.

What is a home appraisal?

A home appraisal happens for two reasons:

  1. When a home sale enters escrow to determine the home’s value, based on nearby recent home sales.
  2. After a homeowner has completed an renovation or upgrade to determine the addition to the home’s value

For the purposes of this article, we will focus on reason 1.

A home appraisal is conducted by an independent third party that is contracted by the lender when a home enters escrow. There is an exception when paying full in cash, but we will get to that a little further down. The lender hires a third party to ensure impartiality on the appraisal as well as to maintain integrity that the lender understands the full value of the property that they are providing a loan for.

Here are the steps of the appraisal process

  1. As soon as the property is under contract, contact your mortgage lender to start the escrow process and to hire the appraiser. Including the signed purchase agreement can be helpful. Lenders are bogged down with refinance and home loan applications as it is, so including proof helps move things along
  2. Verify with your lender that the appraisal appointment is scheduled and when the appraisal is expected to be due back. An appraisal can take up to a couple weeks to complete, so exercise patience. If there needs to be an extension, ask your realtor to get a signed amendment and extension agreement to protect your earnest money and the home sale.
    • It is important to involve the seller in the appraisal process, especially when the appointment is scheduled as well as the timeline for completion. Doing so can help them get a list of comparables, home upgrades, and other relevant information for the appraiser.
  3. When the appraisal comes back, review the information with your realtor. If the value meets or exceeds the value you need, congratulations! The sale can continue on schedule.

If the appraisal value is too low, here is how to proceed

  1. Check the report for errors. Common errors include missing rooms, inaccurate square footage, or incorrect comparables. If you find an error, contact your lender to complete an appraisal rebuttal form.
  2. Speak to the appraiser to get verbal feedback and comments. Make sure to stay calm and respectful as you review details and wok on potentially fixing any errors.
  3. If the appraiser raises the value, fantastic! If not, you still have a few options
    1. Go back to the seller and try to negotiate an price reduction. Bring your low appraisal as evidence to support your reasoning.
    2. If the seller rejects the price reduction, you can either increase funds to the table to make up the difference—bring in more money or a different loan product, or break off the purchase agreement using the appraisal objection contingency clause. As long as this is done within the appraisal contingency window, your earnest money will be protected and you won’t lose it.
      • Consult the viability of these options with your real estate agent. It is their job to represent your best interest in the buying process, so listen to their judgement.

Finding an appraiser when buying with cash

If you are buying a home outright in cash, there is no need for a lender to oversee any financing. However, it is part of due diligence to appraise the home you are buying. Ask your realtor or other investors (if applicable) about reputable appraisers who are experienced in appraising the type of property you are buying (single-family, condos, multi-family, commercial, etc). Take their recommendations and talk to the appraisers about their experience, licences, and certifications. Then, pick the one that you feel is the best for you.

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