Understanding the Appraisal Process: What You Need to Know

Understanding the Appraisal Process: What You Need to Know

If you’re wondering, “What exactly is an appraisal, and when does it happen?”—you’re not alone! Many buyers have questions about this step, especially after making an offer, completing the home inspection, and finishing attorney review. The remainder of the process—including the appraisal, underwriting, and title work—often feels a bit unclear.

So, let’s break it down!

Common Appraisal Questions

📌 Who hires the appraiser?

• Your mortgage lender orders the appraisal. The buyer does not select the appraiser.

📌 Who pays for the appraisal?

• The buyer pays for the appraisal. The cost is typically between $450 – $850, and while it’s part of your closing costs, it must be paid upfront before the appraisal is conducted.

📌 What happens if the appraisal comes in lower than the purchase price?

• This can present a challenge because the lender will only provide financing up to the appraised value. In this case, the buyer and seller must renegotiate the purchase price, or the buyer must pay the difference out-of-pocket. More on this below!

📌 What happens if the appraisal matches the purchase price?

• This is the ideal scenario—it means the home is valued correctly, and the lender will finance the full loan amount based on the agreed purchase price.

📌 What if the appraisal comes in higher than the purchase price?

• While this is rare, it does happen occasionally. Buyers typically love this outcome because it means they are purchasing the home with instant equity—a great deal!

• However, if an appraisal comes in significantly higher (e.g., $50K+ above the purchase price), the lender’s underwriter may flag it for further review to ensure there was no error or unusual negotiation tactics at play.

What Happens If the Appraisal is Lower Than the Purchase Price?

Let’s say you’re buying a home for $400,000, but the appraisal only comes in at $350,000. Uh oh—now we have a problem.

At this point, there are a few options:
1️⃣ Renegotiate the Purchase Price – Ideally, the seller agrees to lower the price to the appraised value of $350,000.
2️⃣ The Buyer Covers the Shortfall – You can bring the additional $50,000 difference in cash to closing, on top of your down payment and closing costs.
3️⃣ A Compromise is Reached – The seller might lower the price partially, and you can pay the remaining difference.
4️⃣ Cancel the Contract – If an agreement cannot be reached, you have the right to walk away and get your earnest money back.

Keep in mind that you do need to consider what you agreed upon during the offer. If you agreed to ‘meet any appraisal gap’, then it is expected that you will make up the difference at closing.

Final Thoughts: What’s the Best Appraisal Outcome?

✅ An appraisal that matches the purchase price is the most common and smoothest scenario.
✅ An appraisal higher than the purchase price is rare but beneficial to the buyer as it means you’re buying with built-in equity.
✅ A lower-than-expected appraisal can lead to challenges, but we’ll work together to negotiate the best possible outcome.

Still have questions? Reach out anytime—we’re here to guide you through every step of the home-buying process!