One of the requirements that mortgage lenders will request during the home buying process is a real estate appraisal. For many first time buyers, there may be some misconceptions as to exactly what this is. A real estate appraisal is a detailed report that is created by a licensed appraiser in your state and establishes the market value of a residential property. This is a very important aspect and several different considerations go into an official appraisal, and it forms the basis of the bank’s determination of the loan value. While appraisals do consider market comparisons, the actual appraisal value comes from much more than a market analysis.
Here are the components of a residential appraisal:
- Property details
- Comparisons to at least three similar properties
- Evaluation of the market conditions in the area
- Environmental conditions that could decrease the property’s value
- Structural issues that could decrease the property’s value
- Estimate of time on the market
- Status of the home site – new development, established neighborhood, acreage
- Appraisals aren’t the same as home inspections
- Appraisals are owned by the lender and not the buyer
- Assessed values don’t necessarily match market value
- Realtors do not provide appraisals
- Consumers do have the right to question appraisal facts and contest them
Understanding the neighborhood and ‘comps’ are an important part of your buying experience, but you are also bound to the official appraisal given to the lender. Work with your realtor, lender AND appraiser to make sure you understand all the details in the appraisal report of your new home.