Now that your past inspections on your home purchase it’s now time to order the appraisal. The buyer’s lender orders the appraisal so the appraiser is not directed by the buyer or the seller. Appraisals have been taking a while and they are a very common source of delays on closings so you want to get this ordered asap after the inspection. You wait until the inspection is complete to order it because you have to pay for the appraisal, commonly $450 -$650, regardless of if the deal closes or not. So you ideally don’t want to order the appraisal before the inspection only to find out the home has issues and you’re not going to move forward. (sometimes to meet the timing of closing you have to order the appraisal before inspections, just fyi)
Appraisals have become a hot topic lately. The issue is many of the appraised values are coming in lower than the contract price that the buyer and seller have agreed to. Why is that? Mainly because the market is in a state of rapid appreciation and often times competitive bidding wars among buyers have pushed the prices up above the level of other recent home sales in the area.
Appraisers must value the home off of other recent sales in the area and if they don’t have the data they need they have to appraise the property low. It’s easy to be frustrated with them when it comes in low but really they are doing their job, making sure that over-enthusiastic buyers don’t pay way too much for the property based on emotion rather than logic. They are there to protect the buyer and the buyer’s lender who does not want to lend money on an asset that is being bought at an inflated price. (Quick tip: If you don’t have cash to cover a shortage and you’d rather not negotiate with the seller over a low appraisal your agent can check in with the appraiser before the appraisal and provide them with the best comparable sales)
I’m seeing appraisals come in low quite often, so let’s address what happens in that scenario. If you haven’t already pre-determined what will happen in that situation in the contract then when the appraisal comes in low there is a bit of a second negotiation between buyer and seller.
Usually the buyer will notify the seller the appraisal has come in low. The seller will ask if the buyer wants to move forward with the deal at the current contact price and then there is some back and forth. Often times the seller will come down some on the price but in this hot market it’s not uncommon for the buyer to have to pay above the appraised value to make the deal work. In this seller’s market the seller is usually winning this negotiation but I do think the seller more often than not comes down at least some as a show of good faith.
Are appraisals worth contesting if you think there is an error? Usually it’s not worth it in my opinion unless there is a clear mistake, like the appraiser missed a perfect comparable sale that would have justified a higher price. This happens from time to time but usually getting an appraiser to change their mind is a losing battle and a waste of time.