You have spent months looking through listings, visiting open houses, and making offers. At last, you find your dream home, and your offer, above the list price, is accepted. You survived the inspection with relatively few issues, and now you are to the final stretch before you get the mortgage.
The appraisal can be scary, particularly for first-time buyers. Since you would not be communicating directly with the appraiser, there is always the risk that their valuation comes in lower than your offer, leaving you scrambling to make up the difference in cash.
What does this process entail, and how can you prepare? We spoke with real estate experts to help guide you through each step of the mortgage broker appraisal so you can navigate it with confidence.
What Is a Mortgage Broker Appraisal?
A mortgage broker appraisal is a professional assessment of the value of a home performed by a licensed appraiser. Lenders demand appraisals whenever a commercial mortgage is used to guarantee they are not lending more than the house is worth. Because mortgages are secured loans, the house itself serves as collateral. If the borrower fails to pay, the lender needs to be sure they can recover their investment by selling the property.
The appraisal process involves a thorough examination of the property’s condition, comparable sales, and market trends to determine the home’s fair market value. The final report will either confirm that your offer aligns with the home’s value or indicate discrepancies that could impact your loan approval.
Ordering and Scheduling the Appraisal
Once the inspection of the home is done, the lender will order the appraisal through an AMC. This way, a third-party, independent service does not have the effect of bias and neither the buyer nor the seller directly influences the outcome of the assessment.
The time to schedule an appraisal varies based on the appraiser’s availability and market, which can take days to weeks, depending on the type of market involved. In competitive markets, delays are common.
Prior Research Before Inspection
Prior to inspecting the property, the appraiser will research the house and neighborhood. In doing so, he or she will;
- Observe whether the property is owner-occupied, rented, or vacant.
- Review the sales contract to see the offer price.
- Observe the local market conditions and neighborhood property values.
Trends in the neighborhood can significantly influence the appraisal value. If home values have been rapidly increasing, appraisers may struggle to find recent comparable sales that support the offer price.
The Appraiser’s Walkthrough
During the walkthrough, the appraiser assesses multiple factors, including:
- The overall condition of the home is both inside and out.
- Size and layout, including the number of bedrooms and bathrooms.
- Upgrades and renovations, such as modernized kitchens, new flooring, or finished basements.
- Structural and safety concerns, such as the roof, foundation, HVAC, plumbing, or electrical systems.
- Curb appeal and lot size may impact its desirability and marketability.
In the case of FHA or VA loans, for instance, a safety concern like peeling lead paint or a missing handrail might require a conditional appraisal, stating repairs need to be completed before approval is granted on the loan.
Reviewing Similar Sales (Comps)
After comparing the property to recently sold homes in the same area, the appraiser determines that the subject property is within a similar neighborhood or nearby, has the same amount of square footage and lot size, a similar number of bedrooms and bathrooms, and is of similar age and construction.
If your offer is significantly higher than comparable sales, then an appraisal may find more than expected in the appraisal report. In a hot market, where houses sell for far above asking price in a bidding war, recent comps do not do justice to current market demand.
Appraisal Report
The appraiser assembles their research into a comprehensive report using the Uniform Residential Appraisal Form. This contains:
- Final Appraised Value of the Home.
- Photos of the property.
- A breakdown of how the valuation was determined.
- Comparable market sales data.
- Any necessary repairs (for FHA/VA loans).
The lender and buyer receive a copy of this report. If the appraised value matches or exceeds the offer price, you are all set to move forward with your mortgage. But what happens if the appraisal comes in low?
Dealing With a Low Appraisal
Low appraisals are infrequently received less than 10 percent of the time. They can also cause unexpected problems. If the appraised value is lower than your offer, you may accept any one of the following options:
You can ask the seller to lower the price to fit the appraisal. In a buyer’s market, the seller may give in because losing the deal would deny them the sale.
Final Thoughts
The mortgage appraisal process is a critical step in buying a home, but with the right knowledge and preparation, you can navigate it successfully. Understanding what appraisers look for, knowing your options in case of a low valuation, and working with an experienced real estate agent can make all the difference in ensuring a smooth home-buying journey.
