When Does Appraisal Happen in Home Buying?

A home appraisal is an assessment of a property’s market value. It is typically required when a buyer seeks financing. Its role is to determine the property’s estimated worth, ensuring the loan amount aligns with the asset’s value. This safeguards the financial interests of all parties.

Understanding the Appraisal’s Purpose

An appraisal is a necessary step, primarily safeguarding the mortgage lender. It ensures the loan amount is justified by the property’s market value. If a borrower defaults, the property serves as collateral, assuring the lender can recover their investment.

It also benefits the buyer by independently verifying the home’s value. This prevents overpaying. A licensed appraiser determines the market value, which may differ from the agreed-upon sale price, based on analysis of the property and market conditions.

Key Milestones for Appraisal Initiation

The appraisal typically occurs after a seller accepts the buyer’s offer. Once the purchase agreement is signed and the loan application progresses, the lender initiates the appraisal. This step usually happens before final loan approval and closing, often within the financing contingency period.

Timing varies based on lender requirements and contract terms, but lenders order the appraisal early to avoid closing delays. The process, from ordering to receiving the report, takes one to three weeks, depending on appraiser availability and property complexity.

Managing the Appraisal Process

Once initiated, the lender typically orders the appraisal through an appraisal management company (AMC) or directly from a licensed appraiser. While the lender orders it, the buyer usually pays the appraisal fee, either upfront or included in closing costs. Costs generally range from $300 to $900, varying by property size, location, and complexity.

The appraiser schedules an on-site inspection, usually taking 30 minutes to a few hours. During this, the appraiser evaluates the home’s condition, size, layout, features, and improvements. They also research comparable sales in the area to determine fair market value, considering location, age, and amenities.

Addressing Appraisal Results

After the appraiser completes the report, it is submitted to the lender, and the buyer receives a copy. If the appraisal value is at or above the sale price, the transaction proceeds smoothly, as the lender is comfortable financing the property. This provides the buyer with immediate equity if the appraisal is higher than the purchase price.

If the appraisal comes in below the sale price, it complicates the transaction as lenders will not loan more than the appraised value. Options include the buyer paying the difference, renegotiating the price, or agreeing to a compromise. An appraisal contingency allows the buyer to withdraw and retain earnest money if a solution isn’t reached.