Guide to Appraisals
Appraisals are a crucial part of the home buying process and are typically required by lenders before finalizing and issuing loans. Read this guide to understand what appraisals are and how they work.
What is an Appraisal?
An appraisal is the estimate of the property's fair market value. It is conducted by a licensed appraiser. This is important to lenders because they want to make sure buyers aren't borrowing more than the home is worth in case the loan is defaulted on. They have to protect themselves too. Ideally, the appraisal needs to come back above or at the purchase price. If the appraisal comes back lower, either the purchase price must be lowered to match the appraisal, the difference must be made up in the down payment, or the buyer can pull out of the contract.
Who Pays for the Appraisal?
The lender orders the appraisal, and in most cases the buyer pays for it. To ensure a neutral party performs the appraiser, the licensed is appraiser is assigned randomly by the Appraisal Management Company.
What Do Appraisers Look For?
When appraising a home, licensed appraisers look at the physical size, type, and condition of the home along with the land and compare it to similar homes that sold within the last 90 days. Having at least three similar homes that have sold is ideal, but sometimes this isn't possible.
The appraiser then makes any necessary adjustments and writes up the report and sends it to the lender.
What is the Difference in an Appraisal and an Inspection?
An appraisal and an inspection serve very different purposes. Appraisals are used to determine the fair market value and includes assessment of the land and similar homes that have sold recently. It is one of the last steps in the buying process. On the other hand, an inspection is focused on finding structural, systematic, or other issues that could cost you financial burden immediately after purchase. Learn more about inspections here.
When you're ready to buy or sell your home, we are here to walk you through every step of the process.