What is an Appraisal and what do I need it for?
An Appraisal is an impartial professional opinion of a Property’s Value. Appraisals are almost always used in purchase and sale transactions and commonly used in refinance transactions. In a purchase or sale transaction, an appraisal is used to determine whether the home’s contractually agreed upon price is appropriate given the property’s condition, location, and features. In a refinance transaction, an appraisal assures the lender that it isn’t handing the borrower more money than the home is worth.
Lenders want to make sure that homeowners are not over-borrowing for a property because the home serves as collateral for the Mortgage. If the borrower should default on the mortgage and go into foreclosure or power of sale, the lender will sell the home to recoup the money it lent out. The appraisal helps the bank protect itself against lending more than it might be able to recover in this worst-case scenario. In some scenarios where a purchaser has paid more than the appraised value, the lender will ask the purchaser to make up the difference with a larger down payment and if that’s not possible there could be issues with closing and other legal problems if the transaction cannot close.
Regardless of which situation you encounter when Buyer, Selling or refinancing any property, a basic understanding of how the appraisal process functions can only benefit you, especially if you’re buying your first home.
