In the last year or so, the lender orders the appraisal once the Buyer has signed the "intent to proceed" with the loan, as the appraisal has taken much longer than in past years. Since 2008, the "Appraisal Management Company" aka AMC is given the appraisal order, then they contact appraisers for the area of the home. This could take up to two weeks. Once the appraiser has the order, they contact the listing agent for access to the property.
The appraisal is for the bank/lender to verify the contract amount is what the home is worth.
Typically, the listing agent attends this inspection with the appraiser, providing documentation to support the contract price. The appraiser takes photos of the home, including updates, and usually wants dates when the updating was completed.
For FHA & VA loans, the appraiser is looking for "conditions" which includes peeling & chipped paint, any exterior electrical with access to nature's elements. (Water and electricity do not go together) If there are any patios or decks with 30", they need handrails. The appraiser is looking for items on the interior too - handrails on any stairs, insulation, they run the furnace and also checks the water in sinks and toilets. If any items are found to be needing repair - this is marked as a "condition" on the appraisal, and Sellers will need to repair and the appraiser will need to do a "re-inspect" and the buyer will have an additional fee for the re-inspect.
Normally the lender will receive the appraisal about three weeks after it has been ordered. This information is only given to the buyer and buyer's agent, not the listing agent. If it came in at or above contract price, the lender will tell the listing agent it came in "at value".
Will the home appraise way over contract price if the value is there? I have had several buyers get quite the deal on a home (even in this strong Seller's market), but the appraiser has a copy of the contract, and knows what the value is they need to achieve. In years prior to 2008, we did see appraisals come in at the true value, and sometimes it was way over. NOT TODAY! Appraisers are on the hot seat, and can lose their license if anything should happen with this buyer down the road, so we may see $5,000 over contract price, but not more.
What happens if the home does not appraise? This can be a sticking point between the Buyers and Sellers! Three things can happen - the Seller can reduce the sales price, the buyer can pay this difference at closing, this amount can be split between Buyer and Seller, or the Buyer can terminate contract. The Buyer will get their earnest money returned. In this strong Seller's market, we are seeing more creative situations, and not always does the Seller reduce the price. With low inventory, the next Buyer may bring this extra amount to closing.
Before the appraisal is approved, the underwriter needs to review it as well, and they could have some requirements of the appraiser, so it is not final until they have done their review. Once this process is complete, usually the file goes into final underwriting, and is nearing closing!
If you have any other questions regarding an appraisal, give me a call at 720-231-6373.