What is the purpose of a home appraisal?

     A home appraisal is a required part of the mortgage process that serves to establish that the value of the home will be sufficient collateral for the amount of the loan. Appraisal fees vary by appraiser, but generally cost between $300 and $500, which is typically paid upfront by the home's buyer or owner (for a refinance).

     A home appraisal is done by an independent appraiser who will visit your home and inspect the interior and exterior. However, the appraiser is not performing the same service as a home inspection.  A home inspector checks the working order and condition of a home and its utilities, whereas an appraiser evaluates the home in its current condition for its marketability.  Generally, home improvements or the cleanliness of the interior will not add to or diminish the appraised value. The appraiser considers many other factors, beyond their inspection, to establish the fair market value, such as comparable values, historic sales and market demand for that area.

     Market values fluctuate over time and also vary from neighborhood to neighborhood, causing appraisals to become outdated. An appraisal is different from a tax assessment, which is done by your county and serves only to calculate your properties value for tax purposes. The appraisal and tax assessment on your home are two separate entities and a change in one will not generally affect the other. 

     When purchasing a new home, it is important to feel comfortable with the appraised amount before committing to a firm offer on the home and before the loan closes. Any concerns or complaints should be brought to the attention of the appraiser, the lender or the state regulatory board. Although the appraisal primarily protects the lender, it can also benefit the buyer or home owner by:

• providing assurances that the home is not over-valued
• justifying the amount of the loan
• qualifying you for certain terms
• evaluating equity to remove Private Mortgage Insurance (PMI)
• protecting against negative home equity
• aiding tax and estate planning
• helping determine insurance valuations
• Determining the feasibility of home improvements, refinancing or additional financing