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What is an Appraisal?

It’s essentially an educated guess of a property’s current value in the form of an issued report by a certified real estate appraiser. The home loan appraisal is a significant milestone within a home purchase transaction. Lenders require it and sellers need it to agree with their purchase price to ultimately sell their listing. Sit back and relax as I explain the ins and outs of the appraisal for Hawaii home loans.

When Does the Appraisal Occur?

It’s ordered by the lender shortly after the buyers and seller both sign a purchase contract. It generally happens directly following the home inspection contingency period. From the time the appraisal is ordered to the time a report is received is usually 7-10 days.

Who Pays for the Appraisal?

Whether your lender tells you about it or not, the buyer will end up paying for the appraisal at a flat standard fee of $650 for any single-family home, townhouse, or condo. The appraisal is either charged up front from the lender during the escrow period, or paid for in the closing costs. The fee is passed through the lender to the randomly selected appraiser.

How Does the Appraisal Differ from the Home Inspection?

The purpose of the home inspection is for the buyer to learn of the property’s current condition and of any defects that could cause financial grief in the future from a certified home inspector. The purpose of the appraisal is only to determine its current value in the market place at that given time based off recently sold comparable properties by a certified appraiser.

Note: VA loan appraisals go a step further in making sure the subject property meets standard home safety guidelines. If safety issues are found, ex. exposed wires, missing floor coverings, lack of hot water, etc. repairs must be made within the escrow period or the lender cannot continue to allow VA lending on the property.

How the Appraisal Can Affect an Escrow Transaction

  • The home value is reported at purchase price (no action needed)
  • The home value is reported above purchase price (no action needed)
  • The home value is reported below purchase price

If the home value is reported below the agreed upon purchase price, then a buyer would have 4 options:

A. Re-negotiate the purchase price down to the appraisal value with the seller.
B. Re-negotiate the purchase price down with the seller but not far enough to the appraisal value requiring additional cash to be installed by the buyer into the escrow.
C. Pay the difference between original purchase price and appraisal value up to $X amount stated in specific Appraisal Clause.
D. Continue with the escrow as planned. If the down payment is large enough, cover the appraisal difference between the purchase price and appraisal value. This is often no issue with loans at 20% down+.

As you can see, there are many different actions that could be negotiated within an escrow if the appraisal value comes in low. Sometimes appraisals can make or break transactions if values come in too low, causing unprepared sellers and buyers to exit the transaction. Having realistic value expectations and foreseeing possible issues ahead of time can help buyers and sellers immensely. Always consult your lender and Realtor on the ins and outs of the appraisal before you get into escrow on a home you really want.

More Information

I hope you found this information to be helpful in preparing you for your home purchase or sale. If you’re in the market to buy or sell, please contact me. I’d be happy to earn your business.

*This information is subject to change. I am not a certified appraiser.*

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