If the buyer will need a mortgage to purchase your residence, their lender will demand an appraisal. If this is the case, your contract probably includes an appraisal contingency.
This will be removed once an appraisal is completed and shows the property is worth at least the amount the buyer is offering to pay you for your home.
The buyer’s lender will choose the appraiser and the buyer’s agent is responsible for scheduling the appraisal. Just like with the inspections, we will ensure the day and time will work for you. The buyer’s agent will typically meet the appraiser at your home and remain there while the appraisal is taking place. Just as with the inspections, it is preferred if the sellers are not present during the buyer’s appraisal.
Appraisers are third-party contractors that are certified or licensed and knowledgeable in real estate. To conduct a thorough evaluation of your home, they will need to walk through your residence. They will be evaluating your property, noting anything that can alter the home’s value, either positively or negatively. The appraisal also includes factors such as neighborhood growth, housing trends, and overall market conditions.
A walk through appraisal will take a few hours to complete and the final outcome is an appraisal report. This report can take up to a week to generate before it is sent to the lender, who then shares it with the buyer and their agent.
If the appraisal shows the home is valued at or slightly above what the buyer is willing to pay for your home, the lender is secure in knowing their investment is sound. Now they can proceed with giving the buyer the full amount of their loan and the appraisal contingency will be removed.
There is always the chance that the appraisal comes back significantly below the offered price. Should this occur, the buyer has a few options:
- Make up the difference in price
- Negotiate a reduced price
- Ask for repairs
- Back out of the deal
In the event of a low appraisal, the buyer’s agent will most likely ask to renegotiate the price. For example, if the offer price is $1,000,000, but the appraisal came in at $950,000, the buyer may request a reduction in price to align with the new number. If we are only willing to come down in price by $25,000, the buyer then has to decide if they are able to front an additional $25,000.
The appraisal may also highlight certain things that are bringing down the price of the property. In this situation, the buyer may request the repairs be made and have the property reappraised. (Once again, comprehensive inspections will help alleviate this concern).
If a buyer’s loan or appraisal contingency is in place and the house does not appraise at the offered value, and we are unable to arrive at a mutually satisfactory arrangement, the buyer can walk away from the deal without penalty.
But, if the appraisal comes in at value, this contingency is removed and we forge ahead!
Learn more specifics about each of the possible contingencies that can be included in a purchase agreement by clicking here.