What happens during the appraisal?

The primary purpose of the appraisal is to determine the value of a property.  To do this, the appraiser will compare the subject property to similar properties called "comparables" or "comps."  Ideally, a comp is a home that:

• is similar to the subject in size, style, and age,
• is located within one mile of the subject property, and
• has sold within the last six months.

We live in a rural area, so we often have to stretch the "within one mile" requirement.  Try finding three similar homes in Lilliwaup that have sold in the last six months!

The appraiser will also evaluate the property to make sure it is safe, conforms to local building codes, and is structurally sound.  While the appraiser is not as thorough as the home inspector, he could require additional inspections, repairs, or modifications to the home.

The appraiser probably isn't going to climb on the roof.  But he or she could require a more thorough inspection by a roofing professional if he sees evidence of leaks, excessive moss, or a blue tarp on the roof.  (Pro Tip:  Avoid blue tarps on the roof!)

There is no one list of potential repairs that appraisers will impose.  The process is subjective and every appraiser is different.  Common repair items can include peeling exterior paint, missing flooring, rotten boards on porches/decks, missing railings, exposed wiring, and missing or failing gutters.

All appraisers will want to see working smoke detectors and carbon monoxide detectors.  The hot water heater should also be secured to prevent it from tipping over during an earthquake.

What happens if the appraisal comes in low?
You have several options if the appraised value is less than the sales price.  If you have an appraisal contingency in your purchase contract (most people do), you could decide not to buy the home.  You could attempt to re-negotiate with the seller.  Or you could continue as planned and pay the difference between the sales price and the appraised value.

Down payment requirements for a mortgage loan are based on the lesser of the appraised value of the sales price.  For instance, let's say you're putting 20% down on a home for which you've agreed to pay $250,000.  That means the lender will loan you 80% of $250,000 (or $200,000).

What if the appraised value is determined to be $240,000?  Then the lender will loan you 80% of $240,000 (or $192,000).  You've agreed to pay the seller $250,000 and the lender will now loan you $192,000 instead of $200,000.  So you'd have to come up with an additional $8,000.

Today, most appraisal reports are delivered with no repairs required and no issues with value.  And if there are any issues, there is almost always a workable solution!