Definition of Appraisal
What is an appraisal? A report completed by an unbiased professional appraiser that determines the value of a given property.
History and Origins
When you’re ready to purchase a home, the lender will require that the property gets evaluated by a licensed third party appraiser who will conduct an appraisal. This professional will visit the home – often with the seller and their agent present – to inspect the size, condition, function and quality to assess its worth. The appraiser will then compare it with other homes in the area to give a final report that determines, based on their professional opinion, the home’s overall value.
The purpose of an appraisal is to protect both the borrower and the lender and ensure that neither party overpays for the home. The lender selects the appraiser to ensure that they are licensed and have no stake or interest in the property that they are evaluating, and the fee may be rolled into the closing costs or paid upfront by the borrower. It’s important to note that an appraiser is different than an inspector. The appraiser will make note of any obvious issues, but won’t be as thorough as a home inspector, so you may want to consider hiring an inspector when purchasing a home.
Real Life Applications
While the appraisal is a necessary step in the home buying or refinancing process, it can delay or even cancel a home sale. You may have already been approved for a certain loan amount by a lending institution, but if the home you want to buy is found to be worth less than the purchase price by an appraiser, the lender may not give the full amount of the purchase price, in order to protect their investment.
The Last Word
A basic understanding of how the appraisal process works will help you have a smoother home buying, selling or refinancing experience. Be sure to discuss with your lender to ensure you are well versed on what to expect.