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How Does An Appraisal Work?

In today’s real estate market banks have a difficult time confirming the value of the homes they are financing, and consequently buyers have a hard time getting the money they need to buy their homes. To avoid the confusion on the price of a home, banks hire a third party assessment of a homes value, called an appraisal.

An appraisal is designed to use local market trends to validate the purchase price of a home, or to invalidate it. Ideally the bank would want to make sure that the home they are lending money on, and may have to take back in the event of a foreclosure, is worth the money so they can recoup any loses they may have on the loan.

An honest and impartial valuation of the property is the point of an appraisal, and only a certified person can be educated enough to do a sufficient job. The main component of an appraisal is that it is objective and that is to assure that the main goal of the valuation is successful, a true value of the property at that point of the market.

The party responsible for hiring the appraiser is the bank, but the buyer typically ends up paying for the appraisal in most cases.

The frightening side of an appraisal is when there is a willing and able buyer, but the appraiser says the property is not worth the asking price. At that point there is really only one thing that can happen to salvage the purchase and that is for the seller to reduce the asking price.

Either the asking price must be reduced or the buyer will put down a larger down payment to offset the valuation shortfall.

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