When you buy a property with a loan, your lender usually asks for an appraisal. An appraisal helps determine the property's value. If you have questions about appraisals, you are not alone. Many people find them confusing and don't fully understand how they work and why they are important. Let's break them down and make it simplify them.
What is an Appraisal?
An appraisal is the appraiser's opinion about how much a specific property is worth. Many things can affect this value, including why the appraisal is needed, the property's location, and current market conditions. The appraised value will vary based on whether the property is being refinanced or sold as a resale. A property sold for resale is exposed to current market conditions, while the refinanced property is not. Factors like being close to a busy street or railroad and whether the property is rural or suburban can significantly affect its value.
Why You Need an Appraisal
You and your lender need an appraisal to ensure the property's value matches your price. It's essential to avoid being in a position where you owe more on your loan than the property is worth, especially since unexpected events might force you to sell sooner than planned. An appraiser will also check the home's condition for health and safety issues to ensure it meets the standards for your loan type. However, remember that this appraisal does not replace the need for a home inspection.
Can I Pick My Appraiser?
Unless you are buying a property for cash and ordering your appraiser, you cannot pick your appraiser. There are a couple of different reasons. One big one is that federal lending regulations require a lender to initiate the appraisal. You want to ensure that an appraisal is as objective as possible, and if you are allowed to pick your appraiser, there could be potential coercion. Many lenders use appraisal management companies rather than contacting the appraiser directly.
Hopefully, this answers some of your questions, although there may be many more. If you have specific questions, contact your real estate professional. If you don't have an agent, call me anytime or stop by my office, and I will be happy to help.
