Portland Home Appraisals – 2020 FAQ
What’s the difference between the home inspection and the appraisal?
Home inspections and appraisals have a lot in common. Both are key to the home sale transaction. Both involve a third party coming into the home to form an assessment. And both can be stressful for home buyers and sellers!
That’s about where the similarities end. A home inspection differs from an appraisal in that the inspection is performed on the buyer’s behalf, and the results will help shape the sales contract. A home appraisal is performed for the sake of the mortgage lender, and the result will only affect how much money the lender is willing to pay for the home. While a home inspector looks at the “guts” of the home, an appraiser’s evaluation will take into account the home’s basic features and livability, as well as outside forces like the value of similar homes on the market. Read more about home inspections vs. appraisals here on our blog.
How will COVID-19 Affect Home Appraisals?
“Desktop Appraisals” are already in use for many refinancing based appraisals. A “desk or desktop appraisal” is when the bank uses varying computer programs to determine the value of a home and an in-person appraisal is waived. More appraisal companies are now utilizing 3D virtual walk-throughs when provided by the real estate agent (all of our homes for sale come with 3D walk-throughs). Some appraisers are engaging with the home owner to obtain live stream video walk-throughs of the property, but that is not a common practice yet.
Who pays for the home appraisal?
The buyer does, either up front or as part of their closing costs with the bank. Even though the buyer pays for the appraisal in order to obtain the home loan, the appraiser’s “client” is the bank giving the loan – and not the home buyer. The appraiser works on the bank’s behalf, to ensure the loan they are providing reflects current home values.
When will the home be appraised?
In Portland, the home appraisal is typically ordered after the buyer makes a successful offer, and both buyer and seller have gotten through the inspection period (typically 10 business days or 2 week). In a simplistic summary of a home sale, there are few steps: negotiated offer, negotiated inspections, passing the appraised value, then final close at escrow.
Why is an appraisal necessary?
In most cases, homes are valued in two ways: By physical characteristics like size and number of bedrooms, and by the final sale price of similar homes in the area. Now, a good listing agent will have already gathered this information before they and the seller set the asking price for the home. That’s the real estate agent’s job, and it’s also their job to fetch the most money for the home that the Portland real estate market will bear! The home appraiser’s job is to verify both the physical characteristics of the home and its market valuation, to ensure that the buyer is paying a fair price for the home. After all, the mortgage lender is the one actually purchasing the home, so they want to make sure they can get their money back out if the buyers end up foreclosing. Home appraisals are a pretty good system to prevent overzealous buyers from paying too much for homes and inflating prices everywhere.
How does the appraiser make their decision?
To create a full appraisal, the home appraiser will typically physically measure the home’s square footage, count the number of bedrooms, etc. They will also determine the market value of the home by looking at comparable homes that have sold, known as “comps”. This information was already compiled by the listing agent when they put the home on the market, but the appraiser must verify everything on their own before the mortgage will be approved.
How do I know if I can trust the appraisal?
Home appraisers don’t just walk in off the street; they are licensed professionals working under strict federal and state requirements. In any state, real estate appraisers must have college-level education, complete pre-licensing courses, acquire industry experience, and pass the appraiser exam. In Oregon, potential appraisers must gain 2,000 hours of experience before they can get a license. Read the full list of licensing requirements here.
Of course, mistakes still happen, just as they do in any profession. A good real estate agent will know when an appraisal is not right, and can help you appeal the appraisal results. (Yes, I have personally had to appeal appraisal results in the past and in cases have won the argument.)
What happens if the home appraisal comes in low?
The most common problem with home appraisals in Portland (or anywhere) is when they come in too low. This often happens when the market is hot, homes are moving quickly, and a buyer in a multiple offer situation wants to make a high offer with no comparables to back it up.
If your appraisal comes in low, there are three things you can do:
1. Walk away. Home buyers will frequently make their offer contingent on appraisal, which means they can walk away from the deal and get their earnest money back if the appraisal comes in low and the bank will not lend the money. The buyer will still typically loose the cost of whatever inspections they ordered and the cost of the appraisal itself.
2. Renegotiate price with the seller. Often, the appraisal is a “reality check” for both the buyer and the seller.
3. Appeal the appraisal results. If you and your agent truly feel that the home is worth what you offered, find evidence to back it up. Look through the appraiser’s report and find what they missed — maybe it’s a feature that adds value to the home, or maybe it’s a comparable showing that the home could sell for more on the Portland real estate market.
4. Worst case scenario – order a new appraisal. Often the buyer would have to change lenders in order to get an entirely new appraisal done, something they are highly unlikely to do. Note that this is not possible (within set time frames) on certain home loan types – FHA, VA, and more.
Can an appraiser require home repairs?
Yes. Even though the home buyer and seller have likely gone through a home inspection and completed repairs or given credits or price reductions in lieu of repairs, the appraiser can still require that repairs be done prior to close (prior to the bank lending the money for the home sale). Now, it isn’t very common and appraisers will typically only call out health and safety factors. The lender wants to ensure there are no “fall hazards” like loose or missing railings, and other simple things like the plumbing and heat sources are functioning, roof is not actively leaking, etc.
Should the seller be present for the appraisal?
The best option is to have the seller present with a list of upgrades. Offer the appraisal the list of printed upgrades and then only engage in conversation with the appraiser if they seem to be amicable to it. Some appraisers will refuse to speak with sellers direct, but will still appreciate any details on the home itself from the seller. Also the appraiser may have basic questions when they are at the property, so it can be helpful for the seller to stick around. The appraiser also may need help accessing certain areas of the home such as the attic or crawlspace.
If you have more questions about home appraisals, inspections or any other aspect of buying or selling a home, give one of our agents a call. We’re friendly, low-pressure and happy to answer questions about the Portland real estate market anytime!April 3, 2020