What is an Appraisal?

An appraisal is a professional opinion of real property to estimate its market value.

For lending purposes, an appraisal is ordered by a client/lender and is usually paid for by a buyer. Most loans require an independent appraisal.

The reason the lender requires an appraisal is that a buyer may think a property is worth more  than it actually is – leading one to make an offer that may be too high. If the appraiser believes the property is overvalued, the lender may feel this is a risk and may not grant the buyer a mortgage.

Basically, lenders want to protect themselves by ensuring the property is worth its market value. The appraisal helps ensure that the buyer does not end up having negative equity in a property.

The Importance of an Appraisal

Getting an appraisal is extremely important for several reasons. As mentioned above, it can help you find out how much a property is worth. It can also help you lower your taxes and eliminate private mortgage insurance.

A certified appraiser can also help you with other property issues: estate planning, analyzing the feasibility of proposed improvements, determining the best use of a property and insurance.

The Appraisal Process

An appraiser’s duty is to inspect the property being appraised to ascertain the true status of that property. Toward this end, an appraiser will analyze market data, including both historic and current comparable sales, current offers, pending sales and proposed improvements to arrive at an appraised value for your home. The appraiser will also compare your property to the broader market. Depending on the purpose of the appraisal, the appraiser might choose to weigh different factors more heavily than others.

In generating his appraisal, an appraiser will pull from a wide variety of sources, including a local Multiple Listing Service, local real estate professionals, county courthouse records, private data vendors, owner interviews, and his or her own personal knowledge. The quality and reliability of each piece of information will be weighed by the individual appraiser.

How an Appraisal Differs from a Home Inspection

You must keep in mind that an appraisal is different than a professional home inspection. An appraiser formulates an opinion of a property’s value for a lender, while an inspector educates the buyer about the condition of the home and its components.

The Ultimate Value of an Appraisal