Home appraisals find out if the asking price is different than the actual value of the property. You’ve found your dream home. The seller is asking $200,000. Your lender has already pre-approved you. But is the home worth that much? That’s the question at the heart of appraisal. The value of the property will determine what the lender will loan you.

An appraisal is the expert opinion that defines the value of a property. A home appraisal protects the bank from getting stuck with property that’s worth less than what they loan to a borrower. And it protects you from paying too much for a house.

Methods

Your lender typically requires you to use an approved appraiser. This creates consistent appraisals. You usually pay for the service as part of closing. The cost is typically around $300, but can be more depending on the price of the property.

There are two common methods for valuing property:

• Sales comps. This compares the property with a few similar homes that have sold in the area. The main factors are lot size and square footage. Style and age of the house, and special features like garages and fireplaces are also considered.

• Cost approach. The appraiser estimates the cost to replace the structure if it was destroyed. The appraiser then looks at land value and depreciation to determine the property’s worth. This method is used more for new construction homes.

Process

Home appraisals begin with an inspection of the property. The appraiser then looks at county records.  They also use reports from the local real estate listing services.

The appraiser then prepares a report that includes this information:

• The reason why the property was valued a certain way
• The size and state of the house.
• A description of any improvements made and materials used.
• Statements about serious problems like cracked foundations.
• Notes about the area.
• Market trends of the area that may affect the value.
• Maps, photos, and sketches.

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