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Why Do You Need a Real Estate Appraisal

In order for you to obtain a mortgage loan, your lender must establish the current market value of the property you wish to purchase. This estimated value is determined by a professional real estate appraiser. This value is an important element of the decision process used by the lender to approve, deny, or approve with conditions, your mortgage loan.

How does an Appraiser determine the Market Value of a Property

An appraiser is a professional who has received education and training in estimating the value of property. Their appraisal is an estimate of the fair market value of the home and contains comments about the physical condition of the property. Strict guidelines and a standardized costing method (accepted throughout the U.S.) govern the appraiser's work. Most states require that an appraiser be state certified or licensed.

How is this Appraisal used by the Lender

The appraisal is a neccessary piece of information the lender uses during the underwriting process to decide whether or not to approve your mortgage loan. The appraisal sets the collateral value of the property which then determines the maximum loan amount. Your lender is usually required by state and federal laws to obtain an appraisal.

What Determines the Appraisal Value of the Property

The appraiser gathers information from two main sources in order to determine the fair market value of the home or property.

The appraiser uses an established method that compares the home or property to comparable homes in the area which have been sold or listed recently

The surrounding neighborhood is evaluated to predict how it will affect the future value of the property. This evaluation includes these main conditions

  • Physical condition of the property
  • Location and Condition of surrounding homes
  • Local government agenda and zoning

The appraiser gathers all of the above data and determines a final estimated market value. A report is then prepared and sent to your lender

What is the Difference between an Appraisal and an Assessment

An assessment is a valuation established by a local taxing authority used only to determine property taxes. As a rule of thumb, it is one half the market value of similar properties in your geographic area.

Who is responsible for paying the cost of the appraisal The appraisal is paid by the home buyer as part of their closing costs. Although fees vary, you can expect the appraisal to cost from $100 to $400. The lender makes the arrangements for the appraisal, and thereby controls this fee.

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