Appraisals are an Important Part of Your Home Buying Transaction
A real estate appraisal helps to establish a property's market value–the likely sales price it would bring if offered in an open and competitive real estate market.
Your lender will require an appraisal when you ask to use a home or other real estate as security for a loan, because it wants to make sure that the property will sell for at least the amount of money it is lending.
Don't confuse a comparative market analysis, or CMA, with an appraisal. Real estate agents use CMAs to help home sellers determine a realistic asking price. Experienced agents often come very close to an appraisal price with their CMAS, but an appraiser's report is much more detailed--and is the only valuation report a bank will consider when deciding whether or not to lend the money.
About Appraisers and Appraisals
Appraisers are licensed by individual states after completing coursework and internship hours that familiarize them with their real estate markets.
The lender might use an appraiser on its staff, or contract with an independent appraiser. If you are allowed to choose the appraiser, and it isn't someone the lender is familiar with, the results might be subject to review before they are accepted.
The appraiser should be an objective third party, someone who has no financial or other connection to any person involved in the transaction.
The property being appraised is called the subject property.
You will probably pay for the appraisal when you apply for your loan.
What You'll See on a Residential Appraisal Report
Appraisals are very detailed reports, but here are a few things they include:
Details about the subject property, along with side-by-side comparisons of three similar properties.
An evaluation of the overall real estate market in the area.
Statements about issues the appraiser feels are harmful to the property's value, such as poor access to the property.
Notations about seriously flawed characteristics, such as a crumbling foundation.
An estimate of the average sales time for the property.
What type of area the home is in (a development, stand alone acreage, etc.).