Once the purchase agreement is accepted and signed, I’ll forward a copy on to the mortgage banker. They will order an appraisal and collect any remaining paperwork they need.
The appraisal will get sent out to an appraisal company, where that company will assign a licensed appraiser to appraise the value of the property. The appraiser will schedule an appointment and go and view the property, take measurements, and some photos. They will use this information to compare it to other recent home sales to come up with a fair market value for your house.
An appraiser will come up with their valuation and this may be different than the purchase price. If it is at or higher than the purchase price, that’s fine. If the appraisal comes in lower, then we have an issue. There are a couple of methods to resolve this issue. 1. You can come up with more cash to cover the difference. 2. We can try to negotiate the price down to the appraised value with the seller. #2 is often the goal, especially if the house is targeted primarily at FHA buyers, since an FHA appraisal stays with the property for 6 months. This means if we don’t adjust the price and we walk away, the property cannot be sold to anyone else for anything higher than the appraised value anyway.
Some lenders will require payment of the appraisal process up front, and some will wrap it into the closing costs. If they ask for it at the time of the appraisal, it usually around $450-550 (as of 2015).
FHA requires certain health and safety standards to be met in a home before they will insure a mortgage on a home. These FHA appraisers may look for and note the following: missing hand rails, peeling paint (especially on the exterior), missing outlet covers, exposed wires, broken steps, non-functioning furnaces and water heaters, and more items.
If the appraiser calls an item out, this usually will end up in what’s called a work order. Work orders usually need to be done by the seller, and once it is done, have the appraiser come back out to verify that the work order was completed.