Just breathe, and enjoy this "wait and see" moment." If the buyer is using a mortgage to buy your home then the lender will require that an appraisal be conducted. Appraisals are used by mortgage lenders to ensure that the property that the buyer is purchasing is worth the amount of the loan they are lending. The appraisal allows them to verify if anything exists on the property that can alter, devalue, or increase the value of the property. Property value is based on such factors as location, amenities, structural condition and recent sales of similar local properties. Appraisals are ordered by the mortgage lender, paid by the buyer and considered part of their closing costs.
Appraisals are conducted by State of Alaska board certified and licensed residential appraisers. Appraisals usually occur during normal business hours, take no more than 30 minutes, and do not require your attendance. Instead, we will meet them at the property to let them in and present any comparative market analyses we conducted to arrive at the home's purchase price.
The appraiser will walk through the property, sketch the layout, and take photos. They will then use this information to compare the property to other like properties. The appraiser typically takes 7-10 days to complete their report. The buyer’s mortgage lender forwards it to the buyer to let the buyer know whether the property appraised at the purchase price, below the purchase price, or above the purchase price.
When the property appraises right at the purchase price, this is good, as the bank will give the buyer a loan for the full amount of the purchase price. Nothing further needs to be done and the closing process can move forward to the next step.
If the property appraises for less than the purchase price, that means the bank will only give the buyer a loan for the appraised value. In this case, the buyer will often come back to us and ask to renegotiate the purchase price down to the appraisal price. If we say no then the buyer has to come up with cash at closing for the difference between the appraisal price and the purchase price and many buyers can’t or won’t want to do that. For instance, if the purchase price is $500,000, but the appraisal only came in at $475,000 and we will only agree to lower the price to $480,000 then the buyer has to decide if they are going to bring an extra $5,000 on top of the down payment and closing costs to closing or walk away from the deal. If the buyer walks away, their earnest money is usually refunded in the case of a low appraisal.
It is very rare for an appraisal to come in high such as the appraisal amount is over the purchase price. When it does, buyers are often very happy as, essentially, they now have instant equity. Occasionally, though if the home comes in significantly over the purchase price, it can cause problems as the underwriter will wonder if there was something shady going on which allowed the buyer to get such a great deal.
Safety Code Violations
During the appraisal, the appraiser is also required to take note of any safety code violations and will specify them in the appraisal report. If they report any, repairs to these violations may need to be worked out between the seller and buyer and completed prior to the lender approving the loan. A final walk-through will afford the buyer the opportunity to ensure that the repairs are complete.