Overview of the Appraisal Process On A California Mortgage
One of the most critical parts of getting a California mortgage is Appraisal. The purpose of an appraisal is to confirm the sales price for the lender.
What is an Appraisal?
An appraisal is a professional estimate of the value of the property that you are planning to purchase. The person who does the appraisal is called an appraiser.
Why do we need appraisal?
Lenders always require a home appraisal before they will issue a mortgage. They do this to protect their investment: if the actual market value of the property is lower than the sales price, and you default on your mortgage, the lender won’t be able to sell the property for enough money to cover the loan.
Cost & Time:
It usually costs between $400-$550 for an appraisal, depending on the lender, property type and location. More expensive homes or homes that have more than 1 unit cost higher to get appraised. Also, a property being bought for investment purpose will cost more to appraise.Ã‚Â The appraisal process usually takes anything between 3-10 business days.
Who chooses the Appraiser?
Recently implemented Home Valuation Code of Conduct (HVCC) prohibits mortgage brokers and commission-based lender staff from the ordering the appraisal or communicating directly with the appraiser at any stage during the transaction. The appraisal is usually ordered via an appraisal management company (AMC) that picks an appraiser on a random basis from the pool of appraisers available to them.
How does the appraiser arrive at the property value?
The most important component in arriving at the value is what is called comparable sales (or comps in short). These are similar properties usually located within a mile and have sold in last 90 days. The appraiser compares mainly the below features of the property against the comparables to arrive at the value
- Square footage
So a large 4 bedroom home in an area where mostly 3 bedroom homes have recently sold will have a higher value, and a house with peeling paint and a patchy lawn in a well-manicured suburb will appraise at a lower amount than otherwise similar properties.
What if the property appraises for less than the sales price?
Though it can cause everyone involved in the transaction to panic; note that there are several options for the deal to still happen. If you wrote your offer contract to include a contingency requiring the property to be valued at the selling price or higher, you can:
- Walk away from the deal
- Negotiate with the seller to reduce the selling price
- Put more money down to cover the difference between appraised value and the selling price
- Request another appraisal