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What Every First-Time Buyer Needs to Know About Appraisals and Closing
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Crossing the finish line of your first home purchase brings equal parts excitement and anxiety. The appraisal process often represents the final major hurdle between you and your new keys – a moment many agents describe as "holding your breath and hoping for the best."
Appraisals carry unique challenges for first-time buyers. Beyond the $500-600 out-of-pocket expense most don't anticipate, there's the startling subjectivity of the process itself. We share a jaw-dropping example where one property received appraisals that differed by $40,000 depending on which professional evaluated it. This extreme variance demonstrates why experienced real estate professionals approach this step with such caution.
Different loan types create additional complexity. FHA and VA loans trigger more stringent appraisal requirements, with seemingly minor issues like peeling paint, garage floor stains, or even appliances not properly installed potentially derailing your purchase. These requirements make certain fixer-uppers practically impossible to finance without alternative loan products.
When appraisals come back below the contracted purchase price, buyers face tough decisions. While paying the difference out-of-pocket occasionally happened during the 2020-2021 market frenzy, most transactions involve sellers agreeing to reduce the price to match the appraisal value. In some cases, creative solutions like reducing seller-paid closing costs can bridge the gap.
After successfully navigating the appraisal, you'll finally reach closing day – that magical moment when paperwork transforms into homeownership. For first-time buyers especially, this milestone represents the culmination of a challenging journey and the beginning of something even more meaningful: having a place to truly call your own.
Ready to start your own homebuying journey? Connect with professionals who understand these critical final steps and can help ensure your transaction crosses the finish line smoothly.
MOVE Worthy Podcast with Lauren Jones & Jenny Lendle. Together we have the experience to MOVE you forward!
First-Time Homebuyer Series: Part Four
Speaker 2okay , we are back with episode 16 of the move worthy podcast . We are finishing up our first time homebuyer series . This is part four .
Speaker 1Part four . There's a lot .
Speaker 2I don't think we expected it to be a series . I thought we were maybe just going to talk about it all at once , but it is a huge process . Yes , we went through seeing houses making offers , bidding wars , getting accepted deposits , what that looks like , inspections , and now we are at appraisal
Understanding the Appraisal Process
Speaker 2.
Speaker 1Appraisal .
Speaker 2So once you get through your inspection process like you're happy with the repairs seller , buyer , agree the next step is going to be to order your appraisal . Every now and then you might order an appraisal first If there's , I guess , any question on pricing . I've had that happen maybe once or twice in my career so far .
Speaker 1I had that happen a few times when we were in the crazy market . Oh , yeah , when the interest rates dropped really low . We did appraisals up front . Um , you know , especially if we were writing , of course we weren't writing no due diligence and no inspections , we were doing them Right . But if we were writing no repairs , we would do the appraisal up front .
Speaker 2You , would do the appraisal up front .
Speaker 1Yep and just get it out of the way . That way the the sellers were had just a little more assurance , that you know . And ultimately I think for a seller they it . It's beneficial for them because they don't have to wait to the end to hoop that hurdle .
Speaker 1You know what I mean and like the appraisal is good , we're good yeah if the appraisal is good , then we'll you know , whatever we have to deal with there in inspections , that'll be the end of it . It's not . Maybe I have to put $15,000 worth of repairs into this house , and what if it doesn't appraise and I have to come down another $15,000 , like that's huge for a seller ? Um , so yeah , I've only had to do it a few times and it was in a very aggressive market yeah , I think I the one time , or I think I may have only done it once , maybe twice .
Speaker 2I can't remember the second time , but I remember the first time .
Speaker 2It was in a changing market where prices were just starting to rise and the sellers were like no , this is what we want for this house , put it on the market , got an offer right away but they were worried about the price and worried about an appraising . So they wrote it into the contract appraisal was to be done first If it didn't appraise for the sale price and the seller didn't agree . To meet the appraisal price and the seller would have been responsible for paying that buyer back the appraisal cost .
Speaker 1Oh wow , you wrote all that into the car .
Speaker 2Because then it kind of you're a buyer , you want the house , but obviously it has to appraise and if we can't come to an agreement then you just wasted 400 , $500 .
Speaker 1Yeah .
Speaker 2So the sellers agreed to that and it worked out well . It did appraise and you know that was a new comp for that neighborhood .
Speaker 1And I think a lot of uh on the appraisal um part of this process process something for a first time home buyer is .
Speaker 1What they need to know is that is an expense that is not . Is not part of the deal . It's out of pocket . It's out of pocket . So , like inspections , appraisal can be one of those things . Some lenders
Appraisal Costs and Considerations
Speaker 1do offer it as one of their perks you know free appraisal and some don't . Some roll it into their closing costs and they have that figured out . Some don't . Um , but something that first-time homebuyers should prepare for outside of inspections is appraisal , and it can typically run five or six hundred dollars right , I know I think they've gone up , yeah , 450 , then it was like 5 yeah .
Speaker 1I think we're closer to $5.75 now . Yeah , everything . So definitely something for first-time homebuyers to consider an extra expense .
Speaker 2So you recently , and you're working on your appraiser's license right now , yes , so what should a buyer and seller , I guess , be concerned about in appraisal ? I know the different types of loans might call for different types of repairs to be done . Some appraisers more specific and detailed than others . What's ?
Speaker 1your take on that my biggest pointer I can give to buyers is appraisers are very subjective and it's a tough place to be in because you know your agent might advise you of a specific number , whether you're a seller or a buyer , and that appraiser can come in and it just be totally off . It doesn't happen super often but it you could always appeal . There's an appeal process that you can go through and if you did , you may find that the next appraiser comes in completely different and that's a hard place to be . It's a really hard place to be . So you know lenders tend to work with the same appraisers .
Speaker 1What happens is appraisals appraisers go into a pool with a lender or a bank and there's typically only five or six that might work a specific area . So they rotate through those appraisers and you know they get used to using the same appraisers over and over for specific areas . So you know they get used to what they expect from you know from a property , and what they don't expect . If they're going to be super hard on whether you have CO2 detectors , whether you have smoke detectors , whether you know chipping paint is going to be a problem for an FHA loan , you know those types of things . I think lenders can definitely help guide you in what's to come , as well as your agents .
Speaker 2Agents should be prepared for what appraisers are coming to look for what might show up in an appraisal that might need to be repaired before
Subjectivity in Appraisals
Speaker 2appraisal . I know I have one right now and there's some peeling paint on the outside windows . We had it under contract FHA loan . We knew that was gonna come up yeah so once we got through inspections , I had already had that conversation with the seller . We're gonna need to do this for sure , right ? You know I had an appraiser , an appraisal come back 40,000 less .
Speaker 2Wow and then we had it reappraised with a different appraiser and it appraised for value for a sale price . That one was insane .
Speaker 1It is . It's so subjective and it's very beneficial to have an agent that can look at an appraisal and look at the comps that they used and just kind of know the market it was an out-of-town appraiser .
Speaker 2Yeah , that happens a lot . I feel like that had something to do with it . And how did the other one come back at ?
Speaker 1$40,000 higher . Those comps didn't just appear suddenly Right , right , yeah , I know it does happen . Appraisals are one of those things that you just hold your breath and hope for the best .
Speaker 2I and appraisals are one of those things that you just hold your breath and hope for the best . Lately , though , it's been okay , it has been , but I don't know , if you noticed , these last six months were quite slow for a lot of towns in our area . I was telling you the other day , like Norco being one . Yeah , that makes me worry for appraisals , because now we really don't have a lot of comps .
Speaker 1Yeah for appraisals , because now we don't really don't have a lot of comps , yeah . So appraisers , you know , typically go back six months if they can get it , if not a year . But when the market gets stagnant for a few months , then you know , and then things start to sell . They're typically selling at a lower price because they've sat longer . So now the the comps have become new comps , typically lower valued comps . So that's kind of where the market shifts and makes its change because the comps have now changed . So appraisers are using different comps and then you'll start to see a trend of prices drop .
Speaker 2Dropping right . Unfortunately , and I think in this situation they are falling , but the amount of houses that have gone under contract in the last two weeks , I'm hoping for Total insanity . Yeah , I'm hoping for that to quickly change .
Speaker 1Yeah .
Speaker 2Like we'll have a few of those bad comps in there and then we'll start to see the good ones pop in .
Speaker 1I think there's still a lot of good comps to support . I don't think it's been quite long enough or as many that have dropped in value or sold at a lower price point . I still think there's some really good comps out there to support good sale prices . But , like I said , it's subjective , so an appraiser can go out there and pull every low comp they can possibly find and that's what you got . Yeah , crazy .
Speaker 2What would you tell a first-time buyer looking to buy a fixer-upper ? Like I usually have these conversations . What type of loan are you wanting to get ? Because that's going to depend on what type of fixer-upper you can do Right yeah . Because things get called out .
Speaker 1Right .
Speaker 2We mentioned the peeling paint . I had an FHA appraisal . The appraiser called out oil stains on the garage floor . Yes . Wanted them scrubbed . However you clean that . Wow , called that out Like that . One was a crazy one . I've had some really random things and then I've had , like VA , call out some broken fence boards they cited safety issues , of course broken window glass or window pane they usually will catch that . What's some other things that you've seen or heard that are maybe out there , or just something to prepare a buyer for ?
Speaker 1um , when it comes to a fixer-upper when it comes to a fixer-upper .
Speaker 2When it comes to a fixer-upper , like what concerns ? I know appliances have to be in there . Yeah , I actually had a first-time homebuyer .
Speaker 1Go look at a fixer-upper a few weeks ago and we actually put an offer in on it it definitely would not have gone FHA . What happened was they gutted the house and started the work but didn't finish the work . What happened was they gutted the house and started the work but didn't finish the work . So while it didn't have countertops , I was told that that wouldn't be an issue . But the fact that the appliances were sitting in the middle of the kitchen and not pushed into the spot
Fixer-Uppers and Loan Requirements
Speaker 1where they belonged was going to be an issue . Not having trim work around the doors was gonna be an issue . Okay , of course , any kind of exterior exposure .
Speaker 1So if you have missing siding or soffit or fascia where you know you can see into the attic spaces , that's of course gonna be a huge red flag . Roof damage is definitely an issue . Non-functioning plumbing so if they don't have functioning toilets , that's an issue . That's an issue for sure . These buyers were actually doing a conventional with a reno loan . So appraisers , what appraisers do in that situation is they'll value it as is and then they'll value it post , post renovation . So those items don't typically flag because they're able to do both sides of it you know as is and then post renovation , so umation , so , but there's , yeah , I would probably if I had a first-time home buyer going FHA , I would probably steer away from fixer-uppers , Fixer-uppers .
Speaker 2I know it's just too subjective . You don't know who you're going to get to praise , I mean . I've seen a house pass that I was definitely expecting repairs to be called out or you could always do this . Nav cash . Oh yeah , we have . We do have a lender that does that . I know we do .
Speaker 1We have a lender that that offers a great program . It is a great program and you can see you can actually pay cash for the property , close on it and then turn around and put a mortgage on it , which is great . But yeah , that'll be a whole other episode .
Speaker 2It would be a whole episode , so I guess . So if the appraisal comes back , the value's good , you move towards closing . If the appraisal comes back and the value does not meet sale price , there are some options . Yes , you either Could pay out of pocket the difference between the contract price and the appraisal price .
Speaker 1Which is not likely .
Speaker 2Which doesn't happen often . It happened in 20 and 21 a little bit .
Speaker 1Oh yeah , for sure .
Speaker 2If you want , sorry , then you would ask the seller to come down to the appraisal price , and that's the most common practice . That's what we see happen .
Speaker 1That's what we see happen most of all . I mean , ultimately , at the end of the day , there's not too many buyers out there that are going to be willing to pay over appraised value , so sellers are typically cooperative . When a buyer comes back and says , hey , you were five thousand dollars off and it came in $5,000 lower than our contracted price , can you meet the appraisal ? They do they usually do , yeah .
Speaker 2I've had some renegotiate some closing costs when it was a little bit more than expected .
Speaker 1Yeah .
Speaker 2And I've only had that happen a couple times . Last year I think last year I had
When Appraisals Come Back Low
Speaker 2one of those happen and it was a little significant for us but the sellers were good with it . We just reduced some of those closing cost assistance and then of course the buyers were happy because they got a really great deal on a great house .
Speaker 1Right , for less than they thought . For less than they thought , yeah .
Speaker 2So they were okay with removing those closing costs . But the sellers agreed we amended the sale price and then we moved on to the closing .
Speaker 1Yeah , so that's .
Speaker 2That's the most common yeah , so once you get through appraisal , you go to the closing table it's usually say two weeks maybe , and it depends , I guess , on how fast the process has gone so far , how many , how , what has gone to the underwriter so far ?
Speaker 1Yeah , I think it all at that point all depends on the lender .
Speaker 2The lender yeah .
Speaker 1Sometimes lenders will put it through a full approval process conditioned on appraisal .
Speaker 2And then you're just waiting for that .
Speaker 1So you're just waiting for that appraisal to get to the closing table . So you know everything else is done at that point . Some don't and some can't because they're waiting on specific things or whatever . Right , but yeah , I would say all in all , a week to two weeks after appraisal Expect to close . Expect to close .
Speaker 2Okay and you typically you get the keys that day . Unless there was some other agreement made in the contract to either a post-occupancy or a pre-occupancy , but typically you're going to get your keys that day . You're going to sit in a room with the buyers and sellers and your agents and the title attorney . You're going to sign a lot of paperwork and then you're going to get your keys and it's going to be an exciting day .
Speaker 1Exciting , stressful , stressful , relief-ful day . Yes , it's all of the above , but overall it's a great feeling , absolutely as a realtor it's a great feeling to see the smiles .
Speaker 2you know the signing the paperwork .
Speaker 1first-time buyer it's an exciting moment , yeah , usually first-time homebuyers are there's not a shot , that it's not exciting . It's the ones that are like selling and buying . It's the ones that are like selling and buying . Those are the ones that are super stressed . They usually have a U-Haul loaded up waiting in the driveway and at closing waiting for the keys . I know that's a stressful thing , but for first-time homebuyers it is typically an exciting moment For sure , for everybody , I think .
Speaker 2I think
Closing Day and Getting Keys
Speaker 2everybody's happy on those days . So that's first time home buying . I mean just to recap it you're getting with a realtor , you're getting pre-approved , you are looking at houses , making offers , doing inspections , appraisals , then you go to the closing . So we could have just wrapped it up in one episode , probably , right ?
Speaker 1no indeed there's so much more that goes into that .
Speaker 2That's your punchline but yes , that's your checklist , the checklist . So yeah , so first time home buying get an agent .
Speaker 1Get a good agent , it's a lot .
Speaker 2A good lender , a good lender , a good lender a team a team of people to help you get through this process is probably the most important thing that we could say definitely it should be an exciting time , while new and a little bit unfamiliar like that's why you have good people on your team to get you through . Yeah , for sure , so all right , so that was the last episode of the first time home buying series , part 4 , episode 16 of the move worthy podcast with myself , jenny lindley and lauren jones , and together we have the experience to move you forward .
