Understand How Home Appraisals Work

Determining the property value of a home is one of the key elements in the home buying or selling process. Even though you may think you know how much a home is worth, a home appraiser ultimately has the final say in the end.

All Appraisers Are Different
Unfortunately, there isn't one definitive method for conducting an appraisal. Each appraiser has their own style and methodology. You will find that some appraisers like to come inside the home and look around. Other appraisers like to remain outside and take measurements.

The Values Are Approximate
If you have 15 different appraisers come to your home it is very likely that you will receive 15 different property value amounts. The values that appraisers calculate are approximate. An appraiser sets a value based on how he/she views a number of different factors related to your home.

A Variety of Sources Are Used
Appraisers examine a variety of sources when valuing a property. Looking around the home is one component, but it isn't the only one. Appraisers look at historic property values in the area, prices of comparable homes, and the current values of homes in your neighborhood. They might also consult with a real estate agent, research court records, and look at the Multiple Listing Service (MLS).

They Have a Short Shelf Life
In general, appraisals are only good for about six months. If time passes beyond that, a lender will want a more current estimate.

Appraisals Affect Your Mortgage
Lenders approve loans based on appraisals. A lender will order an appraisal in order to assess the market value of the home that you are looking to purchase. The lender's goal is to make sure that the borrower (you) is not trying to borrow more money than the home is worth. 

You want the appraisal to be higher than the purchase price of the home. If the appraisal is lower than the purchase price, you may be required to pay the difference in cash or you could negotiate that the seller lower the purchase price.

Appraisals also come into play when you are looking to refinance your home. The appraisal is used to determine the loan-to-value ratio (LTV). If the LTV is 75% or lower, then you could get a lower rate. In this case, the lender does not see your loan as too great a risk. You might be able to refinance your home at a lower rate if the value of your home has increased since you initially purchased it. 

Your property value is linked to many components of home ownership. It affects your mortgage payment and your ability to eventually sell the house if your choose to. Understanding the value of your property is crucial. The best way to do this is to have your home evaluated by a real estate appraiser.