What is an appraisal, and why do I have to get one to buy a house?
In Colorado real estate, it’s usually like this…
What is an appraisal? The buyer usually has to borrow money to buy a house, so the financial institution (lender) that is making the loan submits a request to a third party, called an appraisal management company. They then randomly selects a Colorado licensed appraiser to review similar houses that have sold in the past 6 months. This person then puts together a report (appraisal) with their comparison findings, and submits it to the lender.
Why do I need an appraisal? You need an appraisal because you are borrowing money, and your lender wants to be sure the house is worth the money they're lending you to buy it. Then, if you stop making your house payments, the lender will be able to re-sell the house to get their money back.
Who orders the appraisal? The financial institution lending the money to the buyer.
Who pays for it? The buyer typically pays for the appraisal (which is around $350-$450 for single-family residential), because it’s for the buyers’ benefit. If the seller contractually agrees to pay all the buyers’ closing costs (including appraisal), the buyer still has to pay for it up front, and then will be reimbursed at the closing.
How and when do I pay for it? Your loan officer will usually accept credit card over the phone, or you can pay by check. It is ordered as soon as possible, but usually following inspection resolution so that the buyer doesn't spend money on an appraisal, only to have the contract fall apart due to inspection issues.
What if the house doesn’t appraise? Then the seller does not have to sell, the buyer does not have to buy, and lender will not loan money above the appraised value. For this reason, the buyer and/or seller, if they choose to continue forward, will have to come up with the difference in cash.
If it doesn’t appraise, do I get my money back? No.
How is a VA appraisal different? VA appraisals tend to be a bit more rigorous, with more emphasis on the property condition as it relates to safety. They may make requirements of repairs to the property (by whom is negotiable), which will have to be completed prior to closing and are subject to a $75 re-inspection fee. A VA appraisal also runs with the property for 6 months, even if the original buyer backs out. This can be problematic to the seller if the appraisal is less than what they are asking for the home, and a new buyer wants to obtain a VA loan within that time frame.
Is an appraisal the same thing as an inspection? No. You (or your agent) hire and/or control the inspection process. During inspection you have the opportunity to thoroughly examine major components of the house (i.e. furnace, roof, etc.) for defects or safety issues. An appraisal is ordered by the lender to ascertain value.
*This is why we highly recommend obtaining a real estate professional (or two, like usJ) to represent you. They will be familiar with the market, and will do detailed studies to ensure the value of the home you’re buying or selling is where it should be.
For more information, please contact Tammy or Gayle of
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