If you’re buying a home in Massachusetts with a mortgage, a home appraisal will likely be one of the steps between having your offer accepted and closing day.
An appraisal is an independent estimate of what a property is worth. Your mortgage lender uses it to make sure the home’s value supports the amount of money being borrowed.
For buyers, the appraisal can sometimes feel like another unknown part of the home buying process. Here’s what actually happens, what the appraiser looks at, and what it could mean for your purchase.
What Is a Home Appraisal?
A home appraisal is a professional opinion of a property’s value.
In most financed home purchases, the lender orders the appraisal after the buyer’s offer has been accepted. The appraiser is an independent professional who reviews the property and market information before determining an estimated value.
The appraisal helps the lender make sure it is not lending more money than the property reasonably supports.
What Happens During a Home Appraisal?
The appraiser reviews the home and gathers information about the property.
This may include:
- The size of the home
- Number of bedrooms and bathrooms
- Overall condition
- Layout
- Property features
- Location
- Recent sales of similar homes nearby
The appraiser may measure the home’s exterior, take photos, and make notes about its condition and features.
The visit to the property is only one part of the process. Afterward, the appraiser researches comparable properties and other market information before completing the final appraisal report.
What Are Comparable Sales?
Comparable sales, often called “comps,” are homes that recently sold and are similar to the property being appraised.
An appraiser may look at things like location, square footage, number of bedrooms and bathrooms, property condition, lot size, age, and other features.
No two homes are exactly the same, so the appraiser may make adjustments when comparing one property to another.
For example, a recently sold home may be larger, have an extra bathroom, or have a finished basement. Those differences can be considered when estimating the value of the home being purchased.
Is an Appraisal the Same as a Home Inspection?
No. A home appraisal and a home inspection serve two different purposes.
A home appraisal focuses mainly on the property’s value.
A home inspection focuses on the condition of the home and may identify concerns involving the roof, electrical system, plumbing, heating system, foundation, and other parts of the property.
An appraiser will consider the home’s general condition, but the appraisal should not be treated as a replacement for a home inspection.
If you’re not sure what happens during an inspection, you can also read our guide on What Happens at a Home Inspection?
What Happens if the Home Appraises at the Purchase Price?
If the home appraises at or above the agreed purchase price, the appraisal usually does not create an issue for the buyer’s financing.
The lender will continue reviewing the buyer’s loan and the transaction can move toward closing.
Of course, there are still other steps that may need to be completed before the loan receives final approval.
What Happens if the Appraisal Comes in Low?
A low appraisal happens when the appraiser determines that the home’s value is less than the price the buyer agreed to pay.
For example, imagine you agree to purchase a home for $500,000, but the appraisal comes back at $480,000.
The lender may base its financing on the lower appraised value rather than the $500,000 purchase price. That can leave a difference that needs to be worked out before closing.
Depending on the purchase agreement and the buyer’s financing, there may be several options.
The buyer and seller may renegotiate the purchase price. The buyer may decide to bring additional money to closing. In some situations, the appraisal may also be reviewed or challenged.
The right solution depends on the purchase contract, financing, and circumstances of the transaction.
Can You Challenge a Low Appraisal?
Sometimes.
If there appears to be incorrect information in the appraisal or important comparable sales were missed, the buyer can speak with their lender about a reconsideration of value, often called an ROV.
This does not mean the appraisal will automatically change.
There usually needs to be a reason for asking the appraiser to reconsider the value, such as incorrect property information, possible errors, or relevant comparable sales that were not considered.
Your real estate agent and lender can help you understand the options if an appraisal comes in lower than expected.
What Happens if the Home Appraises Higher Than the Purchase Price?
If the appraisal comes in above the purchase price, that’s generally good news for the buyer.
For example, if you’re purchasing a home for $450,000 and it appraises for $465,000, you still purchase the home for the price agreed to in the contract.
A higher appraisal does not mean the seller can simply raise the purchase price because the property appraised for more.
How Long Does a Home Appraisal Take?
The actual visit to the property may not take very long, but the appraiser still has work to complete afterward.
They need to research comparable sales, review property information, make adjustments when necessary, and prepare the appraisal report.
The total timeline can vary depending on the property, lender, appraiser availability, and local market.
If your closing timeline is tight, your lender and real estate agent can usually give you a better idea of when the appraisal is expected to be completed.
Who Gets the Appraisal Report?
For most buyers using a mortgage, the lender orders the appraisal.
Buyers are generally entitled to receive a copy of the appraisal or other written valuation obtained by their lender for a first-lien mortgage.
It’s worth reviewing the report when you receive it. It provides information about the property, comparable sales, and how the appraiser reached the estimated value.
Do Cash Buyers Need an Appraisal?
Usually, a cash buyer is not required by a mortgage lender to get an appraisal because there is no lender involved.
That does not mean a cash buyer cannot choose to have one done.
A buyer may still want an independent opinion of value, especially if they have concerns about whether the purchase price reflects the property’s current market value.
The Bottom Line
A home appraisal is a normal part of many Massachusetts home purchases.
Most appraisals move forward without becoming a major issue. When a home does appraise below the purchase price, however, there may be some decisions to make before the transaction can continue.
Having an experienced real estate agent on your side can make the process much easier. Your agent can help you understand the appraisal, communicate with the other parties, and talk through your options if something unexpected comes up.
Thinking about buying a home in Central Massachusetts? Real Estate Exchange has been helping buyers and sellers throughout Lunenburg, Fitchburg, Leominster, Townsend, Shirley, Westminster, and the surrounding communities.
Contact our team at (978) 582-4339 or start your home search today.
