Appraisal

10 APPRAISAL

When you buy a home, your mortgage lender will want to know whether the house you are buying is worth the amount of money you have agreed to pay. The lender needs to evaluate the house to discover anything that might negatively or positively impact the home's fair market value. To determine a home's value, lenders require home appraisals for all borrowers.

WHAT IS A REAL ESTATE APPRAISAL? A real estate appraisal, sometimes referred to as a home appraisal, is an estimate of a property's value. Property value is based on such factors as location, amenities, structural condition, square footage, number of bedrooms, and recent sales of similar nearby properties. Appraisals are conducted for single-family homes, condominiums, and multi-unit dwellings. An appraisal is not a home inspection.

A licensed appraiser conducts the real estate appraisal. The appraiser will do a walk-through of the property, noting anything that might alter the home's value. The appraiser will sketch out the floor plan for the home, take photos of the property, and look for any safety violations. If there are any such violations, the issues might need to be fixed before the lender approves the loan. The type of loan sometimes determines whether an issue needs to be corrected. For example, FHA and VA loans have unique requirements.

WHO PAYS FOR THE REAL ESTATE APPRAISAL? Most lenders will collect the cost of the appraisal from the buyer up front. Even if the appraiser's fee isn't collected beforehand, the cost will be passed on to the buyer as a closing cost for most loan programs. Appraisals typically cost between $375 and $500; appraisers will charge additional fees if they need to make multiple visits to the property for any reason. Lenders must disclose appraisal and other fees in the loan estimate, which is a three-page form that potential borrowers receive after applying for a mortgage.

WHEN DOES AN APPRAISAL TAKE PLACE? Typically, the mortgage lender orders the appraisal as soon as it receives the signed purchase and sale agreement in Massachusetts. Sometimes, the situation requires the lender to order the appraisal sooner. In Massachusetts, it is important that the home buyer receives a satisfactory appraisal prior to the loan commitment date.

If the appraiser's assessment on the home value is less than the agreed upon purchase price. The buyer's financing could be in jeopardy. Either the lender will deny the loan or will require the buyer to increase the amount of their down payment by the difference between the agreed upon price and the lower appraisal value. If the buyer does not have the available cash to increase their down payment, the buyer will need to cancel the transaction before the loan commitment deadline.