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When a homebuyer buys a home, the mortgage lender will want to know whether the house, condominium, or multi-family home is worth the amount of money the homebuyer has agreed to pay. The lender needs to evaluate the home to discover anything that might negatively or positively impact the home's fair market value. To determine a home's value, lenders order a home appraisal.
Federal banking regulations require that the lender order the appraisal. The lending rules are a result of the savings and loan scandals in the late 1980s. Federal law entitles a homebuyer to receive a copy of the appraisal from the lender.
The following are four common questions Massachusetts first-time homebuyers ask about real estate appraisals and the answers to those questions.
What is a Real Estate Appraisal?
A real estate appraisal – sometimes referred to as a home appraisal – is an estimate of a property's value. An appraiser uses such factors as location, amenities, structural condition, square footage, number of bedrooms, number of bathrooms, and recent sales of similar nearby properties to determine a home's value. Appraisers conduct appraisals for single-family homes, condominiums, and multi-unit dwellings. A home appraisal is not a home inspection.
Related: Waiving the Appraisal Contingency: What Home Buyers Should Consider
A licensed appraiser conducts the real estate appraisal. The appraiser does a walk-through of the property, noting anything that might alter the home's value. The appraiser will sketch a floor plan for the home, take photos of the property, and look for any safety violations. If there are any such violations, the issues might need to be fixed before the lender approves the loan. The type of loan sometimes determines whether a defect of some sort needs to be corrected. For example, FHA and VA loans have unique requirements.
Who Performs Real Estate Appraisals in Massachusetts?
Appraisers in Massachusetts are licensed. Statutes and regulations govern licensed appraisers, and they must take approved courses and a test to obtain their license and continuing education to maintain their licensure. Appraisers must provide an objective, impartial, and unbiased opinion about the value of the home they appraised.
Who Pays for Real Estate Appraisals?
Most lenders will collect the cost of the appraisal from the homebuyer upfront, but sometimes the cost is passed on to the homebuyer at the closing as a closing cost. A few loan programs do not have closing costs; however, such financing typically has a higher interest rate. Appraisals usually cost between $400 and $600, but appraisers will charge additional fees if they need to make multiple visits to the property. Lenders must disclose appraisal and other fees in the Loan Estimate, a three-page form that potential borrowers receive after applying for a mortgage.
When Does a Real Estate Appraisal Happen?
In most cases, the mortgage lender orders the appraisal as soon as it receives the signed purchase and sale agreement. Sometimes the situation requires the lender to request the appraisal sooner. It is essential that the homebuyer receives a satisfactory appraisal before the loan commitment date in Massachusetts.
If the appraiser believes the home's value is less than the agreed-upon purchase price between the homebuyer and seller, the homebuyer's financing could be in jeopardy. Either the lender will deny the loan or require the homebuyer to increase their down payment by the difference between the agreed-upon price and the lower appraisal value. If the homebuyer does not have the available cash to increase the amount of the down payment, the buyer will need to cancel the transaction before the loan commitment deadline.
