what exactly is an
appraisal?
An unbiased opinion of a property’s fair market value by a seasoned expert.
An appraisal is a professional valuation of a property’s fair market price prepared by a state-licensed appraiser. Mortgage lenders often require an appraisal so they can be certain a piece of real estate is worth its agreed-upon purchase price, and that its sale can cover potential losses if the mortgage defaults.
An appraiser is a state licensed property evaluator tasked with conducting an accurate appraisal—not over- or under-valued to benefit a lender, buyer or seller.
Appraisers conduct research into appropriate market areas, analyze and assemble data pertinent to a property, and then arrive at its monetary value using their knowledge, experience and professional judgment. An appraiser’s report typically includes:
- An explanation of how they arrived at your property’s value
- A brief overview of your local real estate market, including neighborhood and current pricing trends
- A summary of your property’s features, including size, condition, amenities and upgrades
- Additional considerations, such as proximity to shopping or other neighborhood traits that may affect value
- Structural defects, zoning issues, or any characteristics that might adversely affect value
When do you need an appraisal?
They’re not just for mortgages.
While it’s true an appraisal is most often required by a mortgage lender to guide financing decisions, there are a wide variety of instances in which homeowners, assessor’s offices, attorneys, buyers and sellers utilize appraisals. These include:
Private Mortgage Insurance (PMI) is the supplemental insurance many lenders are required to purchase when the loan is more than 80% of the value of the home. After a rise in property value and/or payments to principal bring the loan below this 80% level, monthly PMI is no longer required.
An appraiser can provide an accurate answer to the question of property value, whether you are challenging an inaccurate tax assessment, refinancing an existing property, or evaluating the value of a new one. When a full appraisal isn’t economical or necessary, an appraiser can do a limited appraisal for less money.
When a family member dies, and leaves behind real estate, an appraisal may be required to establish its fair market value for tax filings, presentation to multiple heirs, and proper disposal of the estate.
In unfortunate circumstances, such as divorce, estate settlements, partition suits, foreclosures, and zoning issues, appraisals are required to lawfully settle matters.
Appraisers also help with:
- Advice in eminent domain and condemnation transactions
- Expert witness testimony
- Market rent and trend studies
- Cost/benefit or investment analysis, for example, what will be the financial return on remodeling
- Land utilization studies
- Supply and demand studies
FAQS
Some handy facts about appraisals. (And a few misconceptions.)
Hover the tiles to reveal the facts.
Misconception
Appraisal value can vary, depending upon whether it’s conducted for a buyer or seller.
Fact
An appraiser is required to render services independently and objectivity regardless of who it’s for.
Misconception
A property’s market value is the same as its replacement cost.
Fact
Market value is based on what a willing buyer likely would likely pay a willing seller for a particular property, not the dollar amount required to reconstruct it in-kind.
Misconception
A property’s assessed value should equal its market value.
Fact
Often, this may not be the case, such as when comparable properties in a vicinity have not been reassessed for an extended period.
Misconception
Appraisers are hired only for mortgage-lending transactions.
Fact
Appraisers can provide a variety of services, including advice for estate planning, dispute resolution, zoning and tax assessment review, and PMI removal.
Misconception
An appraisal is the same as an inspection.
Fact
An appraiser forms an opinion of a property’s fair market value. A home inspector determines the condition of the property and its major components.
Misconception
You can tell what a property is worth by looking at the outside.
Fact
Property value is determined by a number of factors, including location, condition, improvements, amenities, and market trends.