Appraisal
An appraisal is a professional assessment of a property's market value, typically required by lenders before approving a mortgage to ensure the loan amount is appropriate.
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Exam Tip
Three appraisal methods: Sales Comparison, Cost, Income. Residential uses sales comparison.
What is an Appraisal?
An appraisal is an unbiased professional opinion of a property's value. Licensed appraisers evaluate the property using various methods to determine fair market value.
When Appraisals Are Required
| Situation | Reason |
|---|---|
| Buying a Home | Lender verifies value |
| Refinancing | Confirm equity for new loan |
| Home Equity Loan | Determine available equity |
| Estate Settlement | Establish value for inheritance |
| Property Tax Appeal | Challenge assessed value |
Appraisal Methods
| Method | Used For | Approach |
|---|---|---|
| Sales Comparison | Residential | Compare recent similar sales |
| Cost Approach | New/unique properties | Land value + construction cost |
| Income Approach | Investment properties | Value based on income potential |
Appraisal Process
- Appraiser inspects property (interior and exterior)
- Measures square footage
- Notes condition, features, upgrades
- Researches comparable sales
- Makes adjustments for differences
- Produces written report
Appraisal vs. Home Inspection
| Appraisal | Inspection |
|---|---|
| Determines value | Evaluates condition |
| Required by lender | Optional (but recommended) |
| Benefits lender | Benefits buyer |
| Done by appraiser | Done by inspector |
If Appraisal Comes in Low
- Renegotiate purchase price
- Pay difference in cash
- Challenge appraisal (request reconsideration)
- Walk away (if contingency allows)
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Mortgage
A mortgage is a loan used to purchase real estate, where the property serves as collateral, typically repaid over 15-30 years with interest.
Comparables (Comps)
Comparables (comps) are recently sold properties similar to a subject property in location, size, features, and condition, used by appraisers and agents to estimate market value.
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