What Is an Appraisal?

What Is an Appraisal?

Let me explain to you what an appraisal really is—it's a valuation of property like real estate, a business, a collectible, or an antique, based on the estimate of an authorized person. This appraiser must hold a designation from a regulatory body in their jurisdiction. You'll typically need appraisals for insurance, taxation, or to figure out a selling price for an item or property. In many situations, lenders insist on them before approving mortgages.

Key Takeaways

An appraisal assesses the fair market value of a property, business, antique, or collectible. These valuations estimate the worth of unique items that aren't traded often. The appraiser needs official designation from the governing body in their area. You can use appraisals for various reasons, like tax deductions on charitable donations. For homes, appraisals can affect sales positively or negatively. They also help banks and lenders prevent loan losses.

Understanding Appraisals

Appraisals come into play in many transactions, including real estate. If a home's valuation falls below the purchase price, mortgage lenders will likely refuse to fund the deal. Unless you, as the buyer, can cover the difference between the appraised value and the loan offer, the transaction stops. The appraiser uses various methods to determine value, such as comparing market values of similar properties or objects.

You'll also see appraisals for tax purposes, like valuing charitable donations for itemized deductions, which can lower your taxes by subtracting the donation value from your taxable income. Appraisals help resolve conflicts among heirs by setting values for estate division of real estate or personal property.

Types of Appraisals

Let's break down the main types. For home appraisals, you need one when buying, selling, or refinancing a home—refinancing means reevaluating and updating your loan to current rates and terms. This appraisal checks the home's value based on condition, age, location, and features like bathroom count. It ensures banks don't lend more than the house is worth.

In case of default, where you can't make payments, the bank uses the appraisal to value the home for resale in foreclosure to recover losses. Remember, when a bank lends for a mortgage, it pays the full home value to the seller upfront, so the appraisal protects the bank from over-lending if you default. Note that a home appraisal differs from a home inspection, which checks the home's condition and spots serious issues before closing.

For collectibles or antiques, professional appraisals cover items like grandma's silver. I recommend getting multiple valuations from accredited pros, who might charge hourly or flat fees. A certified appraiser gives a fair, unbiased value, unlike a local shop that might lowball you. You can check values in collectible magazines or online sites for a small fee, though that's not official—it's based on photos. If you need a pro, start with the American Society of Appraisers.

Appraisals tie into insurance too. Homeowners or renters policies cover personal property up to a limit against theft or damage. Getting an appraisal inventories your items and sets their value for quick claim settlements. If high-value items like jewelry or art exceed policy limits, get extra insurance—underwriters often require appraisals to record existence, description, and value. Some policies have clauses for neutral appraisals in disputes to avoid lawsuits.

Home Appraisal Process and Cost

The process starts after you make an offer and the seller accepts; your lender orders the appraisal, but you usually pay for it—around $500 for a single-family home. The appraiser visits, reviews interior and exterior, takes measurements or photos, which can take minutes to hours.

Then, they use that info plus comparable home values to estimate the home's worth and prepare a report. You and your lender get copies; it takes a week to 10 days. Sellers can request one too. If you disagree, ask for reconsideration or pay for another appraisal.

The actual cost depends on location and time needed—higher for larger or multi-family properties.

How To Improve Your Home's Appraisal Value

Appraisals aim to be objective, but appraisers are people, so good curb appeal and clean rooms signal maintenance without much effort or cost. De-clutter, make minor repairs, freshen paint, clean the yard, and point out improvements to the appraiser. Avoid big, expensive changes—they don't usually pay off.

Know your rights: if you hire the appraiser, the report is yours. For refinancing, the lender must provide a copy, possibly for a fee. If you think the value is wrong, check for errors in comps. Appeal to your lender or get a second appraisal.

Common Questions About Appraisals

How much does a home appraisal cost? On average, $500, higher for larger properties, and the buyer pays when ordered.

Is a home appraisal required? Almost always for mortgaged purchases—lenders check if the home matches the loan amount. Not needed for cash buys.

Can the buyer be present? With approval, yes, or send your agent, but usually just the appraiser attends.

What if the appraisal is too low? Ask the seller to lower the price, pay the difference yourself, or use a piggyback mortgage.

Do I need one to refinance? Usually yes, for value determination, but exceptions exist like FHA streamline or certain VA loans.

The Bottom Line

While appraisals are common in homebuying, they apply to any unique item. They're crucial for setting prices, so ensure a good one if you're buying or selling.