The Appraisal

 

Why might you need an appraisal? How do appraisals work?

In most cases, lenders need a professional, independent appraisal of the property you want to buy or refinance to ensure that it is worth at least as much as they are being asked to lend on it. If you are making a smaller down payment and have a lower credit score, the lender is going to be even more interested in making sure the property that will be collateral for the loan is worth lending the amount requested.

A professional, independent appraiser will usually visit your home and inspect its interior and exterior. The appraiser doesn't want to buy your home, and isn't a visiting head of state. So whatever you do, do not postpone the appraisal until you get a chance to "clean up a little." Cleaning does not make your appraised value higher! And delaying adds time to an already lengthy process.

The appraiser will form an opinion on the probable market value of the property considering sales of similar homes in the area among other factors. He or she will prepare an appraisal report explaining the conclusion. The appraisal belongs to the lender considering lending money with the home as collateral. In California, the law says you are entitled to receive a copy of the appraisal report. Let me know you're interested and I'll be sure you get a copy.

The lender wants to know first of all whether the property is worth at least as much as the loan amount. In the unlikely event the lender would have to foreclose, it wants to know it would be able to recoup its cost. But if your loan program depends on you borrowing, for example, 95 percent of the property's value, the appraisal can impact your eligibility for the loan that's right for you. In a "close" case like that, the best solution is almost always to increase your down payment, or I can help find another solution such as another loan program that works. 

Although not common, certain market conditions make it difficult for an appraiser to write a report that justifies the purchase price of the property.  This does not necessarily mean the property is not worth what you are paying for it.  In the same sense, in certain situations, the home may appraise for more than the purchase price, in which case the lender will use the purchase price as it's established value to determine your loan amount.

An appraisal can cost from $350 to $750 or more for very complex or commercially zoned properties. You as the borrower will generally be required to pay the appraisal fee directly to the appraiser at the time the appraisal inspection is performed.