What is a Home Appraisal?

Published: February 8, 2024

Recently, we have been receiving a lot of questions from homebuyers about how the home appraisal fits into the mortgage process. 

We often see people getting appraisal mixed up with the inspection process, so to get ahead of any confusion, we wanted to share some clarifying information.

What is a home appraisal?

A home appraisal is an unbiased estimate of the true (or fair market) value of a home a buyer is interested in purchasing. It’s conducted by a licensed professional appraiser, and it’s usually necessary to obtain a mortgage loan. The appraisal assures the lender that the property is worth the loan amount the buyer is seeking.

How is this different from a home inspection?

It’s important to note that an appraisal is not the same as a home inspection. While an appraisal estimates a home’s market value, an inspection checks for defects and potential maintenance issues. The purpose of a home inspection is to assess the physical condition of a home, not its value, including its structure, construction, and mechanical systems. It identifies any repairs or maintenance issues that may need to be addressed. 

Appraisals are primarily for lenders and parties involved in the transaction to assess value, whereas inspection reports are used by buyers to understand the physical condition of the home.

How do home appraisals work?

In the mortgage process, once you’ve agreed on a purchase price and have a contract in place, your lender will order an appraisal of the property. The appointed appraiser will inspect the property and compare it to similar homes in the area that have sold recently. The appraiser will consider factors like home features, location, condition, and local market trends.

What factors influence a home appraisal?

The appraised value of a home is influenced by factors such as square footage, overall condition and age of the home, location, and any improvements or renovations. The appraiser will also consider any structural issues or damage that might depreciate the property value.

Why are appraisals important in the mortgage process?

Appraisals are critical in the mortgage process as they ensure a fair transaction and protect both the buyer and lender from paying more than the home’s worth. If the appraisal value is lower than the offer, it may affect the loan amount the lender is willing to provide. Conversely, if the appraisal value is higher, it could potentially lower the loan-to-value ratio, which might mean better loan terms for the buyer.

A home appraisal is a crucial step in realizing your goal of homeownership, and having an understanding of how it works will empower you in that journey. 

As always, do not hesitate to reach out if you have any questions or need further clarification. We are here to guide you every step of the way.

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As always, do not hesitate to reach out if you have any questions or need further clarification. We are here to guide you every step of the way.