Once the purchase agreement the next step is for the mortgage company to order the appraisal. 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 your home, 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 home.
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. The buyer can come up with the necessary dollars to cover the difference (very unlikely), or 2. We can try to appeal the appraisal, or 3. We can lower the sales price to the appraised value, or 4. We can cancel the purchase agreement. Note that in case 2 or 3, if the buyer is using an FHA loan product, that FHA appraisal will stick with your home 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.
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.