Appraisals in Real Estate - Who Really Orders Them?
Diving into a real estate transaction, whether you're eyeing that dream home or preparing to sell your property, brings its fair share of questions, including: "Who schedules the appraisal in a real estate transaction?"
In this blog post, we’ll dive into who orders the appraisal in a real estate transaction and why their role is critical for a smooth and fair transaction. From lenders protecting their investments to buyers and sellers safeguarding their interests, we'll explore the dynamics at play, ensuring you're well-equipped with the knowledge to navigate your next real estate adventure.
Overview of the Appraisal Process
Before we answer the question “who schedules the appraisal in a real estate transaction?”. Let’s go through a quick recap of the appraisal process. Whether you're a first-time homebuyer, a seller looking to list your property, or anywhere in between, understanding the appraisal process is key to ensuring your real estate transaction moves smoothly from start to finish. Here’s a recap of what to expect:
Decision to Schedule an Appraisal:
It usually starts with the decision to schedule an appraisal, typically triggered by a mortgage application or a strategic move by the seller or buyer.
Selection of an Appraiser:
In most cases, the lender takes the lead by selecting a qualified appraiser from their approved list. This ensures an unbiased assessment, as the appraiser has no direct connection to the buyer or seller. For private transactions or for additional opinions, either party may choose to hire a professional appraiser independently.
Appraisal Appointment and Property Visit:
Once selected, the appraiser schedules a visit to conduct a thorough observation of the property. This involves evaluating the home’s condition, size, features, and any unique attributes.
Research and Comparable Sales Analysis:
With the property data in hand, the appraiser dives into research, analyzing market trends, and compiling comparable sales data. This step is critical in understanding how the subject property stacks up against similar properties in the area.
Report Compilation:
The appraiser synthesizes all gathered information to draft the appraisal report. This document details the appraiser’s findings, the methodologies used to determine value, and, of course, the estimated value of the property itself.
Review and Delivery:
Before the report reaches its final destination, it undergoes a review for accuracy and completeness. Once polished, the appraisal report is delivered to the lender or the individual who commissioned the appraisal, marking the end of the appraisal process.
Utilization in Transaction:
The appraisal report then becomes a cornerstone of the real estate transaction, used by lenders to finalize mortgage terms, and by buyers and sellers to negotiate the sale price.
If you want to learn more about the appraisal process, here are some previous blog posts that can help:
How Do Appraisers Determine Home Value? Find Out Now!
Behind-The-Scenes: How Long Does a Real Estate Appraisal Take?
What Is a Real Estate Appraisal Report? | An Easy Guide
Roles and Responsibilities
In any real estate transaction, each person - from lenders to buyers, sellers, and real estate agents - plays a distinct role in the appraisal process. Understanding who does what will help you close a seamless deal.
Lenders
For transactions where a mortgage is in play, lenders are typically the ones who request the appraisal. Why? It’s all about safeguarding their investment. By obtaining an appraisal, mortgage lenders ensure the amount they're lending doesn't leapfrog the property's true market value.
It’s their way of double-checking that they’re not backing a loan that’s worth more than the house itself. This cautious step is less about mistrust and more about prudent financial stewardship, keeping the scales of risk and reward in balance.
Buyers
Now, buyers aren't just passive players waiting for the appraisal to unfold. In certain scenarios, like when they buy a home with cash or when the deal's nuances call for it, they might spearhead the appraisal themselves.
This move can be strategic, like when seeking a second opinion to validate the property's listed price or to wield as a bargaining chip in price negotiations. It's the buyer's way of ensuring they're making a sound investment.
Sellers
Sellers, on the other hand, might opt for a pre-listing appraisal. This proactive approach helps in setting a competitive yet realistic asking price, steering clear of the pitfalls of overpricing or leaving money on the table.
Additionally, having an appraisal in hand can be a powerful tool in negotiations, offering concrete evidence to support the asking price or to counter lowball offers.
Real Estate Agents
Real estate agents, whether representing buyers or sellers, act as the advisors when it comes to appraisals. While they typically don’t schedule the appraisal themselves, they have a significant influence on whether you require an appraisal or not.
Their expertise and market insight guide their clients through the appraisal process, advising on the best course of action based on the transaction's unique dynamics.
Each party’s involvement in the home appraisal process is dictated by their unique interests and the transaction's specific circumstances. By playing their roles effectively, they can reach a successful real estate deal, ensuring fairness, transparency, and satisfaction for all involved.
The Importance of an Impartial Appraisal
Having an independent, third-party evaluation is crucial when it comes to any home buying transaction. It's the bedrock of trust and fairness upon which the entire deal rests.
An impartial appraisal ensures that the property's value is determined by an objective analysis, free from the sway of personal interests or emotional investments.
This unbiased lens benefits all parties involved, from lenders to buyers and sellers, providing a common ground for negotiations and decisions. It's like having a neutral referee in a game, where every call is made based on the rules of fair play, ensuring each player’s moves are justified and transparent.
Impact of the Appraisal on the Transaction
For buyers and sellers, the appraisal is often the base of purchase price negotiations. For starters, lenders hinge their loan approvals on the appraisal value, using it to gauge the loan-to-value ratio.
An appraisal that comes in lower than expected can throw a wrench into the works, potentially leading to renegotiated loan terms or, in some cases, a deal falling through.
On the flip side, an appraisal that exceeds expectations can provide buyers with added leverage and peace of mind, knowing their investment is sound.
What Happens If the Appraisal Comes in Low or High
When the appraiser determines the home’s worth and it doesn’t align with the agreed-upon purchase price, things can become complicated.
For buyers, a low appraisal might be a silver lining, providing leverage to renegotiate the sale price or terms. It's an opportunity to ensure they’re not overpaying.
However, it may also require an additional down payment to meet loan-to-value requirements or, in some cases, finding alternative financing.
Sellers facing a low appraisal have a few choices: they can lower the price to meet the appraisal, offer to make certain concessions, or challenge the appraisal, especially if they believe it missed key value-add aspects of the property.
On the flip side, a high appraisal can be a windfall for sellers, potentially justifying a higher asking price. For buyers, it means they’re gaining immediate equity in their new home, reinforcing the value of their investment.
Whether you're stepping onto the property ladder for the first time, gearing up to sell, or eyeing an investment opportunity, understanding the appraisal process is crucial. If home appraisals seem daunting or if you find yourself with questions specific to your situation, reach out.
Consult with our seasoned home appraisers to ensure you’re making informed decisions every step of the way.
