When applying for a home loan in Texas, or any state for that matter, an appraisal of the property by an approved appraiser will be required. These professionals will come and evaluate your home and compare it with other similar properties in the area. They will take pictures, measure area square footage, and survey different areas to arrive at a valuation. The exercise is conducted to ensure the property you are considering purchasing is worth the loan amount (or more) you are wanting to obtain from the lender. Appraisal reports are always required by a lender before approving your application, and you must know about this process when applying for a Texas home loan.  Here are some frequently asked questions regarding appraisals:

1. What happens if my home doesn’t appraise for the selling price?

If the appraised value is lower than the sales price, you have the following options to ensure the approval process does not gets derailed:

• Work with your Realtor and mortgage expert to dispute the value.  Your Realtor can provide compensating factors (known as “comps”) to the appraiser such as receipts for work done to improve the value, recent sales of comparable homes, and other factors that may influence the increased valuation.
• Request the seller to lower the property’s selling price to match the appraised value.  However, be forewarned that this may not be received too well by the sellers, and in a “Seller’s Market” where there are more buyers than homes to buy the seller will likely move on to another buyer before considering a lower purchase price.
• Offer to pay the difference between the sales price on the contract and the lower appraised value.  Note that the lender will only lend you the lower of the sales price or appraised value.  So if the home does not appraise for the price that you agreed to sell it then additional monies may be required to purchase the home.  This will affect your loan structure, your bank account, or both.  Make sure to talk with your mortgage expert prior to agreeing to take this route.

2. What is the appraisal process?

Once you submit the purchase agreement (a.k.a. contract), the lender will order an appraisal. Upon receiving the request, the appraiser will visit the home and perform various tasks such as measuring the square footage, inspecting any additions to the property, and ascertaining health and safety issues. The professional will also visit similar properties recently sold locally and compare their selling price and features with your home’s characteristics to arrive at an appraisal value. Based on their observations, the appraiser prepares a detailed report and hands it over to the lender.   

3. When do I need to pay the appraiser?

In most cases, you would be required to pay the lender the appraisal cost upfront, and it is not refundable even if you decide against buying the property after the appraisal.  Before paying the appraisal fee, make sure it is a home you want to move forward with while you are still in your option period, or at the very least still in your financing period.  Ask your Realtor or home loan expert for more details and guidance on this.

4. What is an appraisal contingency?

An appraisal contingency gives you the choice to opt out of the contract without paying any penalties, if the home does not appraise. The clause also gives you the right to recover earnest money.  You can waive this contingency if the property appraises. You must consider your situation before deciding in favor of or against including the appraisal contingency in the contract. You can, for instance, forego the option if there are too many buyers trying to woo sellers in your local market or don’t mind parting with a bit of extra cash, especially if you are planning to stay in the home for a long period. If, however, you are working on a tight budget, negotiate with your Realtor to include the provision in the agreement.

5. How long will the process take?

Appraisers, on an average, take anywhere between 5-7 working days to complete the process. The upper limit for VA appraisals can be 10 days. The actual time, however, can depend on various factors, of which the market conditions is one of the most important criterion. Home appraisals, for instance, can take more time if the real estate market is abuzz with buyer and seller activity.  

6. Who performs home appraisals?

Appraisals are performed by certified and licensed professionals who have experience with working in the local real estate market and are well aware of market conditions. Appraisers, due to their exposure and experience in the real estate market, possess knowledge about the conditions and factors that can impact a property’s value.

7. How much does an appraisal costs?

A typical appraisal cost in Texas can be anywhere between $450-$650. The actual amount, however, will depend on many factors such as the type of loan, the complexity, type and location of the property, and size of the home.