Terminology Tuesday: Appraisal

When buying, selling, or refinancing a home, you may hear the term “appraisal.” An appraisal is a professional, unbiased estimate of a property’s market value conducted by a certified appraiser. Lenders typically require an appraisal to ensure the home is worth the amount being financed.

For lenders, the home acts as collateral for the mortgage. An appraisal helps confirm that the property’s value supports the loan amount. If a buyer agrees to pay $700,000 for a home but the appraisal comes in at $680,000, the lender may only finance based on the lower value. This protects the lender from lending more money than the property is worth.

Appraisals can also be useful outside of purchases. They’re often required when refinancing, settling estates, handling divorces, or determining property value for tax purposes.

During an appraisal, the appraiser visits the property to evaluate its condition, size, features, and location. They will measure the home, take photos, and note things like renovations, upgrades, layout, and overall maintenance.

The appraiser then compares the property to recent sales of similar homes in the same area, often called “comparable sales” or “comps.” Adjustments are made to account for differences such as square footage, lot size, age, and features like garages or finished basements. Using this information, the appraiser prepares a report estimating the home’s current market value.

A house appraisal can be an important step in many real estate transactions. It provides an independent estimate of value that helps lenders, buyers, and sellers make informed decisions. While it may seem like just another item on the buying checklist, the appraisal plays a key role in ensuring that a property’s price reflects its true market value.