What is a Home Appraisal?

A home appraisal is an independent valuation of a home to determine its market value.
In general, a home appraisal is organized by a lender and is usually paid for by a buyer. All loans require an independent appraisal by a licensed or certified appraiser.

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. After the inspection, research and completion of an appraisal report, if the appraiser shows the lender that the home is overvalued, the lender may feel this is a risk and may not grant you a mortgage.  Appraisers are to give their opinion of true market value of the property. 

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 helps ensure that the buyer does 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 PMI (private mortgage insurance) from your monthly mortgage payment.

A licensed appraiser can also help you with estate planning, analyzing the feasibility of proposed improvements, determining the best use of a property, settle tax assessment issues and insurance valuations.

The Appraisal Process

An appraiser�s duty is to inspect the property being appraised to ascertain the true condition of the 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 the 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 the appraiser's own personal knowledge of the area. The quality and reliability of each piece of information will be weighed by the 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