Appraisal
Definition and meaning of Appraisal in real estate.
Appraisal is an unbiased, professional estimate of the fair market value of a property, conducted by a licensed appraiser. Lenders require an appraisal to ensure the home's value justifies the loan amount requested by the buyer.
In more detail
Appraisers determine value by inspecting the property's condition, size, features, and quality, and then comparing it to similar, recently sold homes in the immediate area. This protects the lender from financing a property for more than it is worth, and it also protects the buyer from overpaying.
If the appraisal comes in lower than the contracted purchase price, the buyer may have to pay the difference, renegotiate the price, or walk away if a contingency exists. Property valuations are also used for tax assessments, refinancing, and estate planning.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Who pays | Typically paid by the buyer as part of their closing costs |
| Required by | Mortgage lenders in nearly all financed purchases |
| Typical timing | Within a few weeks after the purchase contract is signed |
A licensed appraiser visits a home under contract for four hundred thousand dollars and writes a report valuing it at four hundred and five thousand dollars based on recent sales of neighboring homes.
Frequently asked questions
What happens if a home appraisal comes in low?
If the appraisal is lower than the sales price, the buyer and seller must renegotiate the price, the buyer must make up the difference in cash, or the deal may fall through.
How does an appraisal differ from a home inspection?
An appraisal determines the market value of the property for the lender, whereas a home inspection evaluates the physical safety and structural condition of the house for the buyer.
Related terms
Sources & references
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