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An appraisal is an important part of the home buying process, because it establishes the current market value of the home. Without an accurate appraisal, a homebuyer might be paying more than the home is worth. This is especially problematic for the lending institution, because, if the buyer defaults on the mortgage, the bank will sell the property to recover their money. If the buyer paid too much for the home, the lender won’t be able to recoup the loss.


How is a Home Appraised?

The lender will usually appoint the appraiser, so neither the buyer or the seller has a vote in who is chosen. While this is done to ensure the lender’s interests are represented, it also works to keep the appraisal impartial. The appraiser is chosen for his familiarity with similar properties in the same geographical area, which helps to ensure the report will be accurate. The appraiser will look at a number of variables in assessing the value of the home.

The appraiser first looks at recent sales of similar properties in the same area, comparing them to the current market trends. He then looks more closely at the details of the property, noting any special amenities that the home may possess. The number of bedrooms and bathrooms, the floor plan, and the home’s overall square footage are all taken into consideration.

Next, the appraiser takes an in-depth tour of the home. It’s similar to the home inspection in that the appraiser is looking for damage or malfunctions that will affect the value of the home.


How the Appraisal Affects the Buyer

If the appraisal confirms that the value of the home is either equal to or more than the sale price, the transaction can proceed. However, if the appraisal is lower than the sale price, the lender may put a halt to the sale. At the very least, this can complicate the transaction and cause delays in the sale of the home.

In some cases, this can actually work to the buyer’s advantage. Lenders won’t loan more money than a property is worth and the 20% down payment works to provide an extra buffer, so the bank can be assured of getting their money repaid. For this reason, the low appraisal can be used as leverage to convince the seller to lower the sale price. If he won’t come down on the price, he likely won’t be able to sell the property to anyone.

Since an appraisal is the lender’s way of ensuring the loan will be repaid, they’re interests coincide with those of the buyer. Neither the buyer nor lender wants to be stuck overpaying for a property, so getting the home appraised is the best way to protect against that.