Whenever a buyer is purchasing a home using a mortgage loan, the appraisal is an integral part of the transaction. However, as with many steps in the home buying process, appraisals can be mystifying—particularly for first-time buyers. Here are answers to a few common questions to help clear up any confusion surrounding home appraisals.
- What is a home appraisal? During a home appraisal, a licensed, professional appraiser compiles data on a property in order to accurately determine its market value. The appraiser typically conducts a visual inspection of the home—noting its location, size, and amenities—and considers information such as the recent sales prices of similar properties, area market trends, and more.
- What is the purpose of an appraisal? While appraisals are useful for both the buyer and seller, they are performed mainly for the mortgage lender’s benefit. Since the home serves as collateral for the mortgage loan (the lender will sell the home to recover their money if the buyer defaults), the appraisal helps the lender ensure that they are not loaning more than the home is worth.
- Who pays for the appraisal? Although the appraisal is ordered by the lender, the buyer typically pays. The cost of appraisals varies by location, but is often several hundred dollars (which is paid as part of the mortgage closing costs).
- What happens if the appraisal is lower than the contract price? If the appraisal comes in at or above the price that the seller and buyer have agreed to, the sale proceeds as planned. However, if the appraisal is lower, the mortgage lender may not move forward with the loan. In this case, the buyer often uses the appraisal as a tool to try to secure a lower sales price. But if the seller believes the appraisal is inaccurate, they may seek a second opinion from a different appraiser.
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