In real estate, an appraisal is a professional, independent estimate of a property’s current market value, usually expressed in a written report.
Basic meaning
An appraisal is a formal opinion of how much a home or other real estate is worth at a specific point in time. It is performed by a licensed or certified appraiser who is not a party to the transaction, so the value opinion is as objective as possible.
What it is used for
• Lenders use appraisals during mortgage or refinance processes to make sure they are not lending more money than the property is worth, because the home is the collateral for the loan.
• Buyers and sellers use appraisals to check whether a contract price is reasonable and to help with pricing and negotiations.
• Appraisals can also be used for other purposes like taxation, insurance, estate planning, or dividing property in a divorce.
How an appraisal is done
During an appraisal, the appraiser typically inspects the property’s interior and exterior, noting size, layout, condition, improvements, and any obvious issues. The appraiser then compares the property to recent sales of similar nearby homes (“comps”) and considers local market trends to arrive at a fair market value estimate.
Appraisal vs. assessed value
An appraisal estimates fair market value for a specific use, often related to a sale or loan. An assessed value, by contrast, is set by a local government mainly to calculate property taxes and may differ from the appraised value.
Why it matters
The appraised value can affect whether a loan is approved, the loan amount, and sometimes the interest rate or required down payment. If an appraisal comes in lower than the agreed purchase price, the parties may need to renegotiate the price, increase the down payment, or cancel the deal, depending on the contract and financing terms.
What Does Appraisal Mean In Real Estate?
