An appraisal is an estimate of a home’s value performed by an appraiser. An appraisal can estimate a home’s value in one of three ways. The home is most often compared to nearby similar homes that have recently sold, but also usually includes a rough estimate of reconstruction costs. If the home is a rental property, its value may be estimated by analyzing the rent received versus rents in other nearby rental homes.
An appraisal is performed at the request of the bank, though it is paid for by the home buyer. The bank uses this value estimate to make sure that they are not making a loan for more than the home is worth. If the appraisal comes in at a lower value than the sale price, the bank will lower the amount they are willing to lend.
Current laws (HVCC) prevent direct contact with an appraiser by a lender, borrower or their agent. Third-party appraisal management companies facilitate the selection of a neutral appraiser.
An appraisal is not the same as a home inspection. Though an appraiser will visit the home in person and certainly will take note of glaring home defects, their inspection is cursory compared to those performed by a home inspector.