The Essentials of Property Appraisal in Real Estate

An appraisal is a professional assessment of a property's value conducted by an expert known as an appraiser. This process is critical to buying, selling, or refinancing a property because it gives a fair estimate of its worth based on various factors. 

Key Takeaways

Here's What Typically Happens During an Appraisal

1. 1. Inspection: The appraiser visits the property to inspect its condition, size, features, and any improvements or upgrades. They look at things like the quality of construction, the layout of the house, and any additional amenities.
2. 2. Comparison: The appraiser compares the property to similar properties in the recently sold area, often called "comparables" or "comps." This helps them understand the market value of similar homes and gauge where the property stands in the current market.
3. 3. Analysis: The appraiser considers local market trends, property location, and other factors that might affect the property's value, such as schools, crime rates, and the local economy.
4. 4. Report: After the inspection and analysis, the appraiser produces a detailed report that gives an estimated value of the property. Lenders use this report to determine how much money they will lend for a mortgage on that property.

Conclusion 

An appraisal aims to ensure that the amount of money requested in a loan is not more than the property's value. This protects the lender from loaning more money than the property is worth and helps the buyer avoid overpaying for a property. It's a crucial step in the home buying and selling process that can influence the final sale price and loan terms.

FAQs

1. What happens if the appraisal comes lower than the sale price?

If an appraisal comes in lower than the sale price, it can affect the loan amount the lender is willing to provide. Buyers may need to renegotiate the sale price with the seller, cover the difference out of pocket, or explore other financing options to close the gap.

2. Can I challenge an appraisal if it's too low?

Yes, if you believe an appraisal is unfairly low, you can challenge it. This typically involves providing additional information that might have been overlooked, such as recent comparable sales or errors in the appraisal report. The lender will review this information and may order a new appraisal or adjust the estimated value accordingly.

3. How often do I need an appraisal for my property?

Appraisals are generally required when buying, selling, or refinancing a property. However, homeowners might also seek an assessment to determine their home's value for property tax disputes, estate planning, or to determine the feasibility of a home equity loan or line of credit.