Negotiating an offer on a house is just the beginning of the home buying process. There are many steps that need to happen between the offer and the closing to finish the transaction. The real estate appraisal is one of them.
What is a real estate appraisal?
A real estate appraisal is when a neutral, third-party determines the market value of a home. This figure is independent of both what the seller paid for the house when they bought and what the current offer is. Recent sales of homes in the area that are similar in size and features determine the market value of the home.
Who orders the real estate appraisal?
The buyer's bank orders the appraisal. The underwriting department needs to determine if the loan is a logical and safe choice for the bank and a key instrument for that is the appraisal.
Who performs a real estate appraisal?
Appraisals can be done in a number of different ways depending on individual bank policy. Local credit unions may have an appraiser on staff that can travel to nearby homes in person while larger, national banks may sub-contract their appraisal work out to independent contractors. Some banks even perform virtual appraisals using data found online.
Who pays for the real estate appraisal?
The buyer pays for the appraisal. It is not paid upfront, however. The funds for the appraisal are paid at the time of the closing. It is typically a line item on the HUD-1 Settlement Statement. While the cost for an appraisal is minimal, some banks will let you roll the cost into your mortgage.
Does the seller get a copy of the real estate appraisal?
The seller does not get a copy of the appraisal. In fact, the buyer doesn't usually get a copy either. The bank typically informs the buyer's agent and the title company whether or not a house appraised at or above the offer price. The buyer can request a copy of the appraisal if they would like to see it.
What if the house does not appraise for what I offered?
If a house does not appraise, neither the buyer nor the seller can do anything about it. You cannot ask the bank to re-appraise the house or request a second opinion. The buyer has two choices at this point. They can talk to their lender about bringing additional funds to the closing to make up the difference or they can walk away. All real estate contracts have a financing contingency that states if the bank will not finance the house for any reason, including appraisal issues, that the buyer can cancel the sale without penalty.
The real estate appraisal is an important part of the closing process. Talk to your real estate agent for specific details about appraisal trends in your market.