One of the most critical parts of getting a mortgage is the Appraisal. The purpose of an appraisal is to confirm the home value for the lender.
An appraisal is a professional estimate of the value of the property that you are planning to purchase.
According To Wikipedia:
Real estate appraisal, property valuation or land valuation is the practice of developing an opinion of the value of real property, usually its Market Value.
The need for appraisals arises from the heterogeneous nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location – which is one of the most important determinants of their value.
So there cannot exist a centralized Walrasian auction setting for the trading of property assets, as there exists for trade in corporate stock. The absence of a market-based pricing mechanism determines the need for an expert appraisal/valuation of real estate/property.
If the appraiser’s opinion is based on Market Value, then it must also be based on the Highest and Best Use of the real property.
Most people are surprised to learn what appraisers actually look at when determining the value of a real estate property.
A common misconception homeowners generally have is that the value of their home is determined after the appraiser has completed their physical property inspection. However, the appraiser actually already has a good idea of the property’s value by the time they have scheduled an appointment to stop by the property.
Read More About What Appraisers Look For
Regardless of whether home prices are going up or down based on outside economic factors that impact housing markets, appraisers have continued to follow a standard set of guidelines and best practices to determine values.
The following questions / myths about real estate appraisals should help clarify why your property’s value isn’t necessarily where you think it should be:
Read More About Five Home Value Myths
Why is there such a difference between what my appraised value is and the price similar homes are selling for on my street?
It’s a great question, and you don’t have to be a mortgage professional or a real estate agent to understand the answer. The distinction lies in the purpose of the two valuations and who is responsible for creating them.
Read More About Neighborhood Comp vs Actual Appraisal
It’s obviously easier to picture the process of estimating value on an existing property in a neighborhood that has a history of home sales, but the task of determining the value on new construction projects does pose some challenges.
Appraisals on homes that haven’t been built yet generally require the contractor and home buyer to supply more documentation in order to get a more accurate estimate of the property’s value.
Read More About Valuing A Property That Hasn’t Been Built Yet