What is an Appraisal?

A appraisal is an independent valuation of real estate made to determine its market value.

In general, an appraisal is organized by a lender and is usually paid for by a buyer. Most loans require an independent appraisal.

The reason the lender requires an appraisal is that you may think a home is worth more money than it really is – leading you to make an offer that may be too high. If the appraiser leads the lender to believe the home is overvalued, the lender may feel this is a risk and may not grant you a mortgage.

Basically, lenders want to protect themselves by ensuring the property you are considering buying with a loan from their institution is worth its market value. The appraisal also helps ensure that you, the buyer, do not end up having negative equity on a home.

The Importance of an Appraisal

Getting a home appraised 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 or licensed appraiser can also help you with estate planning, analyzing the feasibility of proposed improvements, determining the best use of a property, and with insurance valuations.

The Appraisal Process

An appraiser’s duty is to provide an independant third party opinion of value. 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