What is it?
Any time a buyer is using a loan from a bank to purchase a home, the bank will require an appraisal. The appraisal is not related to the inspection. The purpose of the appraisal is for the bank to ensure that the home has enough value to secure the mortgage in case the buyer defaults on the loan. The appraiser is assigned by an Appraisal Management Company (or AMC), which is contracted by the bank. The AMC has a pool of appraisers, and the appraiser chosen for a given transaction is random and cannot be influenced by any parties in the transaction. In fact, your loan officer is actually forbidden from contacting the appraiser. The appraisal fee is set by the bank, and can range any where from $400-$1000+. Often, if time is tight, a buyer can pay a higher fee for a quicker turnaround on the appraisal report.
What About Low Appraisals?
Many buyers who have talked to friends or family have heard of nightmares of low appraisals. The truth is that low appraisals are actually quite rare (occurring in about 3% of transactions). The appraisal could also come in high - who doesn’t like instant equity!?
When an appraisal does come in low, there are many options for buyers, sellers, the lender, and the Realtors in the transaction to explore. There are many ways to counter a low appraisal, though oftentimes they are not successful. In most situations, the buyer and seller agree to a middle ground price change where the purchase price is lowered a little, and the buyer comes up with a little extra cash.