In the simplest of terms, an appraisal is an estimate of the value of property. When you want to take out a mortgage loan for a property, an appraisal is required. This helps assure the price you’re paying is on par with the home’s worth, and the lender is not loaning you more money than you could reasonably expect to get back if you decide to sell the home.
The appraisal will be based on factors like square footage, the number of rooms, and the age and condition of the home. Another big indicator of a home’s value is what similar homes in the area have sold for. It’s very common for the appraisal value of the home to be the same, or very similar, to the selling price of the home. That’s because the biggest indicator of a home’s value is what someone is willing to pay for it.
The appraisal is an important part of the home buying process, but it does not take the place of an inspection. Appraisals determine the property’s apparent value, but inspections are an investigation into the condition of the home. The two paired together can help protect you as a buyer from overpaying for a home or buying a home that is in need of major repairs.
On some occasions, the appraisal value of the property will be more or less than the selling price. If the house is appraised at a higher price than you’re paying, it’s a good indicator that you’ve found a good deal or you need a thorough inspection to look for hidden problems.