An appraisal is a critical part of real estate. If you are planning to buy a house and get it financed by a mortgage lender, you WILL require an appraisal. This appraisal will determine the value of the home, and the mortgage lender will accordingly approve funding, provided you have met all other approval criteria.
Who Pays for the Appraisal?
Since it is the lender who is financing the house, they order the appraisal, but it is you, as the Buyer, who pays for it. Typically an appraisal costs $300-$500 and should be factored in by the buyer when budgeting for the house.
Who does the Appraisal?
The appraisal is done by a professional, called an Appraiser. Usually an appraisal is done after the house is under contract, and within the appraisal contingency period. The appraiser takes into account the condition of your house, and compares it to similar homes or “comparables” that have recently sold in your area.
What does this mean to you, as a Buyer?
For the buyer an appraisal will help determine where their offer stands in respect to the value of the house. It safeguards you, as a buyer, from offering more than the real value of the house. For example if you have your dream home under contract for $450,000, but the appraisal came in at 430,000, it means that you have offered offered $20,000 more than what the bank will approve. In this case you would have to renegotiate the offer price with the seller. However if the house appraises for 480,000, it means that you have built-in equity in the property, and are getting a good deal :)
What does this mean to you, as a Seller?
Since an appraisal can affect the value of your home, it is important for you, as a Seller to be in the know of what the comparable homes are selling for in your neighborhood. This will allow your agent to price your home for sale accordingly. Thus, when faced with a multiple offer situation on your well-priced home, you will know to choose a solid offer, based on strong terms, rather than the highest offer, because you would already be aware of what the appraised value would be. This will negate any appraisal based issues you could have had as you head towards closing.
The appraisal is by no means an exact science, as no two homes are exactly the same. It is an educated guess by a professional to determine the current value of the property, but because of the role it plays for the lender and the buyer is a critical step in the real estate industry.