What is an Appraisal?

An appraisal is an independent unbiased educated opinion of the value of a property. It may be real property (such as a house), personal property, or even intangible assets (such the value of a business interest).

In the appraisal of houses for loan purposes, an appraisal is typically ordered by a lender and is usually paid for by the borrower. Appraisals are confidential information, and the appraiser can typically report the appraisal information only to the client (lender). As such, the borrower must derive his/her information concerning the appraisal from the appraisers client (whomever that might be - typically the lender). 

The reason the lender requires an appraisal is that they need to document and establish that the property is adequate collateral to cover the value of the loan. It also helps the buyer to know that they are not paying too much for the property, and if this is the case the appraisal report may be adequate grounds to renotiate the contract to a lower price or as a means to opt out of the contract all together and retain the earnest money deposit.

How Long is an Appraisal Considered Reliable

There are many issues considered regarding an appraisal, and appraisals are used for many reasons. A house appraisal may be used as part of the process to get a loan, it may be the means to remove PMI from your loan, it may be used to purchase the appropriate amount of property insurance, to settle a dispute, or a myriad of other reasons. The appraisal is an estimate of value based on the market at a single point in time. Markets change and properties change, and the value of the property today may be different than the value of the property tomorrow (as in the next day). What if the property were to be appraised on a Tuesday, and the improvements were destroyed by a fire on Tuesday night. In this case the value of the property on the following Wednesday would likely be significantly different than it was the day before. This is why an appraisal must be based on a specific point in time; however, as long as the improvements can be shown to be virutally the same as it was on the effective date of appraisal, most lenders consider an appraisal reliable for about 6 months.

How a House Appraisal Differs from a Home Inspection

An appraisal is different than a professional home inspection. An appraiser formulates an opinion of a property’s value for a lender, while an inspector educates the buyer about the condition of the home and its components. While an appraiser considers the condition of a home in his/her value conclusions, much more information is reviewed and analyzed than only the structural worthiness of the property. The Home Inspector is reviewing the physical condition of the property, and the appraiser is measuring the economic condition of the property.

The Ultimate Value of an Appraisal

An appraisal performed by a professionally licensed appaiser is valuable because it is unbiased. The appraiser has no interest in the property, he/she will not be coaxed or coerced into providing a value based on preconceived notions of the properties value, and the value opinion is based on market evidence that can be used to defend the opinion of value if so required. This gives the client the confidence to make an informed business decision regarding the economic value of a propety.