So, you found your dream home, made an offer, and (congrats!) the seller accepted. But before you can call this place yours, in order to get your financing, you’re going to need a home appraisal. That way you’ll know exactly how much your property is worth, and your lender can feel secure in their investment.
The appraisal can make or break your mortgage loan, so you may be feeling a little bit antsy right now — which is a perfectly normal feeling, according to Alan Daniels, a real estate agent who ranks in the top 1% of Colorado Springs agents.
Buyers want to make sure that the home appraises at least at the sales price, he says. If it doesn’t, it creates another round of negotiation “and the potential of not closing.”
While the appraisal may take longer than the home inspection did, it generally won’t take long enough to leave you on the edge of your seat. Here’s everything you need to know about the appraisal process, including how long an appraisal should take and what to expect.
What is an appraisal?
Despite working out a price between you and the seller, an appraisal report is created by a licensed third-party appraiser to determine the fair market value of the home. Appraisals are typically required by a mortgage lender so they can properly value the home to determine how much they are willing to lend, but sellers will sometimes have appraisals done prior to the listing so they can price their property accordingly.
The buyer typically pays for any appraisal required by the lender, which costs anywhere from $300 to $400 on average, though Daniels says it can run upwards of $500 to $900, especially if the home is located in a rural location, which will cost a larger trip fee. The lender is the one who will hire an appraiser and will receive the appraisal report.
What goes down during the appraisal?
This is where the appraiser will examine the actual property. They will then determine the condition as average, good, fair, or poor, which can impact the home’s value.
Comparable sales, or comps
The examiner will look at recent sales of similar properties, usually sold within the last year, to establish a reasonable cost for the home.
Evaluation of data
The appraisal report, which shows detailed adjustments to the comparable sales to determine the home’s value, is typically 10 pages or less.
So how long will the home appraisal take?
Depending on the size of the home and current housing market, an appraisal can take anywhere from a few days to a few weeks, according to Tom Cullen of Cullen Real Estate and Appraisal Company, an appraiser for more than 30 years. Here’s the general timeline of what to expect:
The lender will order the appraisal
After the house is under contract, the lender will typically order the appraisal through a third-party appraisal management company (AMC) for an unbiased opinion. According to Cullen, appraisers will typically respond within 48 hours of being contacted.
The response time also depends on the current housing market and interest rates. “When interest rates are higher, slower times, you can get the appraisal back in a matter of days. So it can be a matter of days to weeks, depending on the market conditions,” Cullen says.
Different loans can make the response time longer as well, Daniels says. For example, if there is an influx of VA and FHA loans, the appraisal time for those specific loans will be longer, as opposed to a conventional loan.
The appraiser will stop by the house for a visit
Once you set up a time, the appraiser will stop by the property and look at the interior and exterior of the home, noting physical attributes, quality, amenities, size, and any extra features. They’ll also ask the broker to present whether improvements have been made or if there are any repairs they should include in their valuation.
These questions and observations help the appraiser fill out the Uniform Residential Appraisal Report. The form asks for information about contracts, improvements, neighborhood characteristics, housing trends in the area, available utilities, measurements, number and types of rooms, property condition, and whether the property fits with the surrounding neighborhood.
This information will give them what they need to identify comparable sales. Here’s a sampling of what you’ll see in a typical appraisal report:
- Property site
- Construction quality
- Roof and foundation integrity
- Gutters and siding
- Exterior condition
- Porch/patio amenities
- Square footage
- Functional layout
- Number and size of bedrooms, bathrooms, and kitchens
- Included utilities
- Health and safety accouterments
- Interior condition
- Structural integrity
- Code compliance
- Heating/central air
The physical inspection can take anywhere from 15 minutes to several hours, depending on the size and condition of the home. For example, a cleaner home is generally easier for the appraiser to work through and assess than a dirty one. Plus, it will take more time for an appraiser to walk through each room in a larger home.
The appraiser will look for comparables
Now that the appraiser has a handle on what they call the “subject property” (your house), they’re going to verify data from municipal records about the age of the home and lot size before performing a comparable sales analysis.
While searching for comparable sales, the appraiser is looking for the most recent, most proximate (nearby geographically), and the most similar properties that are sold to get a good grasp of what the fair market value is. This typically shouldn’t take too long thanks to appraisal software, but it can be difficult to find similar properties for more unique homes. For example, a cookie-cutter subdivision home will be easier to match than a waterfront home with several bedrooms.
“There’s going to be a range because some are really simple, there’s a lot of data available, but for some unique properties, you’re really going to have to search hard — go to other communities, other towns, sometimes different states,” Cullen says.
“It can take anywhere from hours to days to locate truly similar comparables.”
The appraiser will prepare the report
The appraiser will then use all the information gathered from the physical examination and the comparable sales to develop the appraisal report, which is approximately 10 pages long for residential lots.
The report traditionally consists of local comparable properties, the appraised value, how the appraiser determined the value, and what factors the appraiser took into consideration. Cullen says appraisers will use either a cost approach (the price the home was previously listed at), income approach (how much it is rented for), sales comparison analysis, or a combination of all three to determine the fair market value.
While shorter forms can be done in as little as six hours, depending on their workload and the complexity of the home, the appraiser should have the report completed in less than a week.
Generally, from the time the lender orders it, you can expect to see an appraisal report anytime between two days and one week. But if the market is particularly busy, it can take up to two weeks for it to end up in the lender’s hand.
Will anything delay an appraisal?
Aside from the busyness of the market, gaining access to the property can sometimes be an issue, according to Cullen. For example, if the broker is unavailable or too busy, it could delay the appraisal process. But as long as the appraiser can gain access to the home, it should only take days to a few weeks to receive the appraisal report.
So you have the appraisal report. Now what?
If the appraised value is about the same as your offer, it’s time to close on your dream home. Congratulations!
On the other hand, if the appraisal is lower than your offer, it could be an opportunity for you to renegotiate the sales price with the seller — or you may have to make up the difference in cost. More often than not, Daniels says he sees buyers cover up to $10,000 of the home cost or meeting the seller halfway.
But if you can’t strike a deal, you as the buyer can still back out of the purchase contract and get the earnest money you initially deposited back. This is the function of an appraisal contingency, a common clause in real estate contracts that protects the buyer if the appraisal falls short of the offer amount. Additionally, loans like the VA or FHA have additional protections that state if the home doesn’t appraise for any reason, the buyer can get their earnest money back, according to Daniels.
“If it doesn’t come to terms, as long as it’s terminated by the appraisal objection date, then the buyer gets their earnest money back, and it’s back to the drawing board.”
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