What is an Appraisal?
An appraisal is a review and report of the fair market value of an asset. For consideration of this article we will stick to the most common; home appraisals. If you are purchasing a home or refinancing a current mortgage, your lender will want an appraisal of the property.
This report must come from a certified professional. Often the lender will supply the appraiser. There is a fee for this service, but it is usually included in the costs of the loan.
An appraiser will inspect the property, taking note of such things as the age of the house, how many bedrooms and bathrooms it has and any incidental extras, like an upgraded or remodeled kitchen, that the home can claim.
The appraiser will then search a database of homes that have sold recently in the immediate area. He will look for homes with similar features and square footage. These are called “comps.” The word is short for comparables.
The appraiser will find a number of homes that have sold, generally in the prior three to six months, and that compare to the home being appraised. He will use these sale prices to determine the approximate fair market value that the home in question should appraise at.
Appraisals are used by lenders to ensure that they are not lending more money than they could reasonably expect to recoup should a borrower default on their loan.
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