What is an appraisal?
An appraisal is an estimate of a property's fair market value, prepared by a state-licensed appraiser who evaluates the home's size, condition, location, amenities, and recent sales of comparable properties. Lenders require it to make sure the loan amount doesn't exceed what the home is worth.
Why get an appraisal?
- To obtain a purchase or refinance loan
- To contest a property tax assessment
- To establish replacement cost for insurance
- To settle an estate or divorce
- To price a home for sale or negotiate a purchase
How do appraisers determine value?
- Sales comparison approach: the most common method for homes. The appraiser compares your property to three or four similar homes sold recently, usually within six months and a half mile, and adjusts for differences.
- Cost approach: the value of the land plus what it would cost to rebuild the home, minus depreciation.
- Income approach: used for rental properties, based on the income the property can produce.
Who owns the appraisal?
The lender owns the appraisal even though you pay for it. You're entitled to a copy. If you switch lenders mid-process, the appraisal can often be transferred, though some lenders charge a small fee to retype it.
Who sets the market value?
The seller sets the asking price, often with a comparative market analysis from a real estate agent. The appraiser's job is to independently estimate value, not to confirm the contract price. If the appraisal comes in low, you can renegotiate, bring more cash to closing, or request a review.
How can I help my appraiser?
- Make sure the appraiser has access to the whole property
- Provide a copy of the sales contract, listing sheet, and survey if you have them
- List recent improvements with dates and approximate costs
- For rental property, share income and expense information