The purpose of an appraisal is to establish the market value of a property. When a home or other type of real estate is to be security for a loan, the lender will instruct a licensed appraiser to conduct a professional appraisal of that property. The question is will the property sell for the loan amount if offered in an open and competitive real estate market. This detailed valuation is the only report a bank will contemplate when determining whether or not to lend the money.
For the lender, this is a vital step in the mortgage process. The bank will need to know that they can recover the money they have lent on the property, should some unforeseen crisis result in a default.
An appraisal is important for both the buyer and seller. Should you be contemplating buying, an appraisal clearly shows whether the price you’re paying is indeed in line with what the banks consider a fair market value. If on the other hand, you should be on selling side, it shows you what a realistic asking price is for your house.
The appraised value is different than the asking price, offer price, or sales price. The asking price is what the seller believes is a fair and equitable offer for the home. A seller can choose any asking price they want.
An offer price is the figure that the buyer is willing to pay for the property, which could be an accurate reflection of the true market value of the home. Conversely, the buyer may be trying to purchase the property at a substantial reduction.
Finally, the sales price is the figure the buyer and seller actually settle at after negotiations and it usually falls somewhere between the asking price and the offer price.
An appraiser is a professional, licensed by their state; lenders often have appraisers on their staff. The buyer usually pays for the appraisal when they apply for the loan. An appraisal shouldn’t be confused with a comparative market analysis (CMA). A CMA is used by estate agents to help owners decide on a realistic asking price.
The appraiser will look at features like number of bedrooms and bathrooms to ensure that they really exist and are in good condition. Most important, the appraisal looks for any obvious features-or defects-that would affect the value of the house. If there are any factors that are damaging to the property’s value, like poor access, they will be reported as well. Any inherent faults such as broken drains will also be reported as well as an estimate of the time it will take the property to sell
If you’re unsure what price is reasonable for the market and your property, consider paying to have an appraisal done? The mortgage company may send an appraiser, but your own appraisal can give you a starting point.