What Is the Next Step After an Appraisal?

The appraisal report is a professional assessment providing an objective valuation of a property. It helps ensure the property’s worth aligns with the financial aspects of a real estate transaction, whether buying, selling, or refinancing. Receiving this report directly influences how the transaction proceeds.

Understanding the Appraisal Report and Its Immediate Impact

Upon receiving the appraisal report, review its key components. The report states the appraised value, the appraiser’s professional opinion of the property’s market value, and the effective date. Property details, such as physical description, square footage, and condition, are included. The report also lists comparable sales (“comps”), which are similar properties recently sold in the vicinity used to determine the property’s value.

The appraised value directly impacts the transaction’s financial aspects. For buyers, it determines the maximum loan amount a lender will approve. Lenders base their loan amount on the lower of the purchase price or the appraised value, utilizing a loan-to-value (LTV) ratio. This ensures the loan’s collateral is appropriately valued.

For sellers, the appraisal provides an objective, third-party market valuation, validating the agreed-upon sale price or indicating if adjustments are necessary. In refinancing scenarios, the appraised value establishes the maximum amount that can be refinanced against the property’s equity. An appraisal contingency is a common clause in purchase agreements, allowing the buyer to withdraw from the contract without losing earnest money if the appraisal comes in below the agreed-upon price. This safeguards the buyer from overpaying and the lender from over-lending.

Proceeding When Appraisal Meets or Exceeds Contract Price

When the appraisal value meets or exceeds the contract price, the real estate transaction typically proceeds smoothly. This indicates the property’s value supports the purchase price, aligning with lender financing requirements. The lender reviews the appraisal report to finalize loan approval.

This positive appraisal result usually allows the appraisal contingency, if present, to be satisfied or removed. Satisfying this contingency signals a clear path forward for both buyer and seller. With the appraisal cleared, the transaction moves into its final stages.

Subsequent steps include final loan underwriting, where all financial documents are thoroughly reviewed. Title work, which involves researching the property’s ownership history and identifying any liens or encumbrances, continues. With these financial and legal aspects progressing, the parties can schedule the closing date.

Addressing a Low Appraisal

A low appraisal occurs when the property’s appraised value comes in below the contract price, posing a challenge. The lender will not finance more than the appraised value, creating a gap between the purchase price and the maximum loan amount. Buyers and sellers then have several options.

One common approach is to renegotiate the purchase price with the seller. The buyer’s agent can present the appraisal report to the seller’s agent, using the lower valuation as a basis to request a price reduction. Sellers might agree to lower the price to match the appraisal, or a compromise could be reached where both parties share the difference. For instance, if the appraisal is $10,000 below the contract, the seller might reduce the price by $5,000, and the buyer brings an additional $5,000 to closing.

Another option is for the buyer to bring additional cash to closing to cover the appraisal gap. The buyer pays the difference between the appraised value and the contract price out-of-pocket, ensuring the lender’s loan-to-value requirements are met. This can be a viable solution if the buyer has sufficient liquid funds and is determined to purchase the property at the original agreed price.

A formal challenge to the appraisal, known as a Reconsideration of Value (ROV), can be pursued. This process involves the buyer or their lender submitting new, relevant comparable sales data or pointing out factual errors, omissions, or misrepresentations in the original appraisal report. Examples of evidence include recent sales not considered by the appraiser, significant property improvements that were overlooked, or incorrect measurements. The ROV process is not guaranteed to change the value and requires strong, objective evidence. Only the lender can formally request an ROV on behalf of the borrower.

Finally, if an appraisal contingency is part of the purchase agreement, the buyer can terminate the contract. This allows the buyer to walk away from the deal without losing their earnest money deposit, provided the termination is within the terms of the contingency. This step is typically a last resort if negotiations fail and the buyer is unwilling or unable to cover the appraisal gap.

Moving Towards Closing After Appraisal Clearance

Once the appraisal hurdle has been cleared, whether through a favorable initial appraisal or by addressing a low valuation, the transaction progresses toward its conclusion. The next phase involves final loan underwriting. During this stage, the lender conducts a comprehensive review of all financial documentation, including income, assets, and credit history, to provide final loan approval.

Simultaneously, title companies and escrow services prepare all necessary documents for the closing. This includes ensuring a clear title to the property, free of any undisclosed liens or claims, and preparing the closing disclosure, which details all financial aspects of the transaction. The closing disclosure must be provided to the buyer at least three business days before the scheduled closing date, allowing ample time for review.

A final walkthrough of the property is typically conducted by the buyer shortly before closing. This inspection confirms the property is in the agreed-upon condition and that any agreed-upon repairs have been completed. It is an opportunity to identify any last-minute issues before the transfer of ownership.

The closing appointment is where all parties sign the necessary legal and financial documents. This includes the mortgage note, deed of trust, and various disclosures. Funds are transferred, and the property deed is recorded, officially transferring ownership to the buyer. After signing, the buyer receives the keys, completing the home purchase.