A home appraisal is the dollar value of your home that is calculated by a licensed or certified appraiser hired by the lender during a purchase or refinance process. The lender needs to know how much money to lend the buyer – how much the house is really worth. The buyer covers the cost of the appraisal and it usually runs several hundred dollars. Both buyers and sellers should pay attention to the appraisal amount because an appraisal that comes in different than an agreed-on price may cause the buyer to back out or renegotiate the selling price.
How does the appraiser arrive at the value of a property? Appraisers view both the interior and exterior of the house, taking photos and noting any damage, deterioration, safety hazards, the square footage, and the number of rooms, etc. They will also look at ‘comps’ – a term that means ‘comparable properties’ – in other words, what properties similar to yours have sold for recently. Sometimes unique properties such as historic homes can be difficult to compare, but a licensed or certified appraiser will know how to arrive at a value despite a lack of comparable properties.
Government-backed mortgage loans such as FHA loans and VA loans have additional requirements that an appraiser must report such as the operability of utilities and appliances to ensure they are in working order.
An appraisal differs from an inspection in that it is conducted to determine the value of a property for the lender, whereas a home inspection is for the benefit of the buyer’s interest to determine home repairs needed prior to arriving at a final purchase price.