Typically, when we talk about keeping track of a home appraisal, the seller has more ability to stay on top of what’s happening. Sellers have done research on the market before they set a home price, and because it’s their house, reading the appraisal results won’t take as much hand-holding from the agent. There are countless tips for sellers on prepping for an appraisal, what to expect during the appraisal, and even a seller’s home appraisal checklist!
But what about the buyers? Shouldn’t the buyers be kept in the loop about the home appraisal process and have a checklist of their own?
Yes, they should — although lenders are the ones who require the appraisal. Understandably, they want to make sure the house is worth the amount of money the buyer is applying for. Buyers should be kept in the loop because they can use that information to negotiate the terms of the deal or back out completely, providing they have an appraisal contingency in the contract.
As you read through this guide, you’ll learn more about the home appraisal process from the buyer’s point of view. And we’ll give you a home appraisal checklist so you’ll know what’s going on when your potential home is being appraised.
Breaking down the home appraisal checklist for buyers
1. Discuss the sales price with your real estate agent
A home appraiser will research comparable properties, or comps (properties that sold recently and that are similar to the one you’re interested in) when they are trying to figure out the fair market value of the home. They will look at the house’s condition, neighborhood characteristics, upgrades and renovations, square footage, and so on.
You can do your research and review recent home sales to get an idea of how much you’re likely to pay for a similar home. However, we highly recommend discussing the sales price with your agent because they have tools at their disposal that will allow them to create a full comparative market analysis (CMA).
The agent can show you how to use the CMA to determine if the house is worth the asking price, even before the appraiser comes in.
2. Make an offer on the house
After discussing the sales price and the CMA with your agent, you’ll need to decide whether or not you’d like to make an offer on the house. If you choose to make an offer, you’ll want to ask the agent whether they think you should offer to pay the asking price, or offer above or below it.
In 2021, your agent’s opinion about what makes a strong offer could mean the difference between getting a house … or not. Mike Nemecek, a top-selling agent in the Green Bay Area with 16 years of experience, says he’s seen many offers going above the asking price.
“We haven’t had a lot of appraisal issues, but if the home you want to put an offer on is appraised at $200,000 and you offered $220,000, you have to decide what you want to do. We could approach the seller and tell them the house didn’t appraise for the price they want, and we no longer want to pay $220,000. We want to purchase it at the appraised value.”
After your offer is given to the seller, the fun begins! It’s time for negotiations.
The seller could accept your offer, or they could respond with a counter-offer — or reject it altogether. This is where your real estate agent can flex their negotiating skills and try to get everyone to come to an agreement where neither party feels like they’re on the short end of the stick.
3. Don’t forget the appraisal contingency!
Keep in mind that when you’re submitting an offer, you will likely need to put up good-faith money, also known as earnest money. This deposit shows the seller that you seriously intend to buy the property. By including an appraisal contingency in your offer, you’re protecting yourself and your deposit. If the home appraised lower than your offer, you’re able to walk away with your deposit intact.
Although the lender requires the appraisal and an appraisal contingency, they usually aren’t the ones footing the bill for the appraisal — the buyer is. The cost of an appraisal ranges between $300 and $1,500, but the cost will depend on location, size, condition, and so on. Don’t worry too much about the expense; the national average is between $312 and $407, according to HomeAdvisor. With that said, there are some financial options where you can skip the home appraisal altogether.
If you are applying for a conventional loan there’s a chance you might qualify for an appraisal waiver. That said, it’s hard to know who will actually qualify for an appraisal waiver because neither organization has guidelines available to the public.
There are a few factors that are most likely to get you approved for an appraisal waiver, and they include your credit score, what assets you have, and the loan-to-value ratio. If you’re borrowing 70% or less than the property’s total value in a home below the conforming loan limits, your chances of being approved are higher.
Another way you can avoid needing a home appraisal is if you’re a cash buyer. In some markets, you could go through HomeLight Cash Offer to make an all-cash offer and waive the appraisal contingency in the initial offer, save the appraisal for when it’s time to close on your mortgage.
4. The lender orders the appraisal
Unless you’re a cash buyer, you’re going to need to take out a sizable loan from a lender. The lender will almost always order a home appraisal before they issue a final approval on a mortgage — they need to protect their investment! Should the borrower default on their mortgage payments, the lender can’t sell the property for enough money to cover the loan if the house is actually worth less than the market value.
The lender will hire an independent appraiser (often, they’ll use appraisal management companies, who in turn choose the appraiser) because they are an unbiased third party, which means they’ll come back with a fair report.
5. Appraisal day
Once the lender places an order for an appraisal, the appraiser will usually respond within 48 hours. Depending on the size and condition of the property, an appraisal could take anywhere between 15 minutes and 3 full hours, and the lender may receive the report in two to seven days. If you have an FHA or VA loan, the appraisal timeline is about the same as one for a conventional loan, but the appraisal will be more detailed.
Unlike a home inspection, where the buyer can tag along (and that’s recommended!), the appraiser usually goes it alone; however, the seller or their agent could be present to answer any questions or provide extra information to the appraiser.
At this point, buyers just have to sit and wait.
6. Review the appraisal
After the appraisal is finished, you’ll receive the report. The appraisal report will go over everything the appraiser looked at to come to their decision about the home’s value.
Most appraisals come in right at (or even above) market value. With that said, Fannie Mae published a study using appraisal data, which shows that appraisals below asking price happen about ~8% of the time. In the study, for every percentage point that the appraisal value comes in below the asking price, the relative chance of renegotiating the price increases by 70%.
If the value of the house is lower than asking, the lender could deny the loan.
Fortunately, buyers do have the option of negotiating with the seller to make up the difference between their offer price and assessed value.
You’ll want to review the report with your agent, especially if the appraisal came in lower than your purchase price. The first thing to look for are any discrepancies, which could include miscalculated square footage, incorrect zoning, or even a mismatch in the number of rooms. When you point out these mistakes, make sure you have documentation to back them up.
If you feel the assessed value is lower than the fair-market value, and you can back this up with comps your agent showed you, then you may be able to order another appraisal.
“We have buyers saying they’ll make up the difference between the asking price and assessed value. We have buyers agreeing to make up the difference, or they’re willing to meet the seller halfway,” Nemecek explains.
“If there’s a significant difference between the appraisal and asking price, you could have a discussion about having a second appraisal done.” Your agent can help you discuss this option with your lender.
Decide what you want to do
You’ve come so far and you’re so close to closing; it can be a huge let-down when you realize the appraisal is lower than the asking price and the seller isn’t willing to budge. If the lender isn’t willing to approve your loan, you’ll have to decide what to do.
Do you want to try to make up the difference between your offer and the assessed value?
Do you want to try finding a new lender? Note, this could cause significant closing delays, so may not be an option if your closing date is approaching.
No matter what you want to do, you need to take the time and think about both your lifestyle needs and what you can afford. Sometimes it’s best to cut your losses and back out of the deal — as long as you didn’t forget to include that appraisal contingency!
Header Image Source: (Mathilde Langevin / Unsplash)