During the home buying process, you'll hear the term "appraisal" mentioned at
some point.
Chances are, you already have a general idea what this term means. But when
it comes to mortgages and home buying, you need to know exactly what an
appraisal involves and how it affects you.
First, a definition:
Appraisal -- A professional appraiser's estimate of the market value
of a property. Appraisals take into account the local market conditions and the
characteristics of a property. They are required by most lenders.
In other words, the appraisal is the lender's way of determining a realistic
market value of your future home. The lender uses the appraisal to ensure that
the home is actually worth the price you've agreed to pay.
In the unfortunate event that you can't pay your mortgage, the bank will
foreclose on the home and resell it. Not a nice thought -- but it's reality. The
appraisal is how the lender protects its own financial interests.
Generally, you'll have little control over the appraisal process and won't
even be present for it. Chances are, your lender will arrange the appraisal, and
the house will either appraise at the asking price or not. Hopefully the former.
If the home appraises for less than the asking price, you have two options.
You can come up with the difference, or the seller can reduce the asking price
to match the appraisal.
Also keep in mind that an appraisal is not a home inspection. A home
inspection is something you should obtain to protect your investment. An
appraisal is the appraiser's opinion about the value of your prospective home.
But that's it. Appraisers will not test the functionality of appliances, inspect
the roof, or perform other tasks a home inspector would do.
* Copyright 2006, Brandon Cornett. You may republish this article in its
entirety, provided you leave the byline, author's note and website hyperlink
intact.