The appraisal: what your lender is checking and what happens if it comes in low

Why the lender requires it

A mortgage is secured by the property. If the loan ever goes unpaid, the house is what the lender recovers, so the lender needs an independent opinion that the home is worth what you agreed to pay. That opinion is the appraisal, prepared by a state-licensed appraiser the lender selects, usually through an appraisal management company so that nobody in the transaction chooses the appraiser.

The number matters because your loan is sized against it. Lenders calculate the loan-to-value ratio using the lower of the purchase price or the appraised value. When the appraisal meets or exceeds the price, the loan proceeds as approved. When it comes in below the price, the lender will only lend against the appraised value, and the difference has to come from somewhere.

Federal rules require your lender to give you a copy of the appraisal promptly after it is completed, and no later than three business days before consummation, at no extra charge. The Consumer Financial Protection Bureau publishes that rule and explains what to expect from the report. Ask your loan officer for the copy the day it is finished.

Timing and access after mutual acceptance

The lender orders the appraisal once your loan application is in and the purchase agreement is in the file. Form 22A ¶1(a) requires you to apply within the days written in the blank, five if left empty, so the appraisal order follows shortly after that. Turnaround on the Eastside runs roughly one to three weeks depending on appraiser availability and the property type.

The appraiser needs to get inside. Access is arranged through the listing side, and the appraiser typically spends under an hour at the property measuring, photographing and noting condition. You do not need to attend. The listing broker may meet the appraiser and hand over information on the home and recent sales; that is permitted. What nobody may do is pressure the appraiser toward a number.

Once the report reaches the lender it is reviewed by underwriting and then released to you. Tell your agent the moment you receive a copy, because the notice clocks in Form 22A ¶5 run from your receipt, not from the date on the report.

Appraiser versus inspector

The two visits look similar from the curb and do different jobs. Your home inspector works for you under Form 35 and is looking for defects: the roof, the electrical panel, the crawl space, the water heater. The appraiser works for the lender and is forming an opinion of market value. The appraiser compares your home to recent nearby sales, adjusts for size, condition, lot, view and updates, and reconciles those figures into a value.

Appraisers do note condition, but at a higher altitude than an inspector. They will flag health and safety items the loan program cares about, such as missing handrails, peeling paint on an older home, or a roof at the end of its life. When the lender makes the loan conditional on a repair, that is an Appraisal Work Order, and Form 22A ¶5(d) requires you to give the seller notice with a copy within three days of receiving it.

Never treat a clean appraisal as a clean inspection. The appraiser is not certifying the systems, and the appraisal offers you no protection against defects.

If the appraisal comes in low

Form 22A ¶5 lays out the procedure. Within three days after receiving a copy of the appraisal, you may give the seller notice of low appraisal with the appraisal attached, on Form 22AN. The seller then has ten days to respond in one of four ways: order a reappraisal or reconsideration at the seller's expense, reduce the price to the appraised value, propose a smaller reduction with you paying the difference, or reject.

Your reply period is three days from the seller's rejection or, if the seller stays silent, from the end of the seller's response period, whichever is earlier. You waive the financing contingency including ¶5, accept the seller's proposal and confirm you have the funds, or terminate. Inaction during the reply period terminates the agreement and returns the earnest money to you. The Closing Date is extended as necessary for these notices.

Which path fits is a conversation among you, your agent and your loan officer: the size of the gap, your cash, whether the comparable sales support an appeal, and how much you want the house.

• Renegotiate: the seller reduces the price to or toward the appraised value
• Cover the gap: you bring the difference as additional down payment
• Appeal: a reconsideration of value submitted through the lender
• Exercise the contingency: terminate under the form's procedure

Waivers, value acceptance and what "at value" means

Some conventional loans qualify for value acceptance, sometimes called an appraisal waiver, where Fannie Mae or Freddie Mac accept the price based on their own data instead of a new appraisal. Your lender will tell you if your loan qualified; it depends on the loan program, your down payment and the property. FHA and VA loans require an appraisal, and VA appraisals follow the VA's own process, including a step that gives the buyer's side a chance to submit sales data before a low value is finalized.

Two other documents can change the picture. If your offer included Form 22AD, you committed additional funds up to a stated amount to cover an appraisal gap, and that addendum supersedes ¶5 of Form 22A. And if your agreement checked the "will" box in 22A ¶2, waiving the financing contingency also waived ¶5. Your agent can tell you which apply.

When people say the home appraised "at value," they mean the appraised value is at or above the contract price. Your loan-to-value calculation uses the price, your down payment stays as planned, and the lender moves to final approval. Anything above the price is equity you own on day one, not cash back.