Why do I need an appraisal?

You have found the one!  It's your dream home!  The list price is within your budget so you're ready to move forward with your first home purchase.  You contact your loan officer and she says, "Great!  We will order the appraisal."  What?  What is an appraisal? Why do you need an appraisal?

What is an Appraisal?

For real estate -An appraisal is a professional appraiser’s opinion of value. The preparation of an appraisal involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience, and professional judgment of the appraiser. Appraisals may be required for any type of property, including single-family homes, apartment buildings and condominiums, office buildings, shopping centers, industrial sites, and farms ( Appraisal Institute) 


If you are taking out a loan to purchase a home, in most instances the lender will require that an appraisal is performed.  They will want to know the value of the collateral for the loan.  To understand the appraisal process read more at this previous post:
How the Appraisal Works in the Home Buying Process

Reasons for an Appraisal: 

Here are some of the more common reasons for a real estate appraisal:

1. Lending Purpose Appraisals- If you are buying a home or refinancing a home with a mortgage lender, the lender most likely will require an appraisal of the collateral.  Each lending institution has its own requirements for an appraisal.  In some cases, the loan may qualify for a Property Inspection Waiver (PIW) where the borrower may have the option to waive the appraisal. We recommend seriously researching about PIWs before agreeing to waive the appraisal.  For most, the purchase of a home is the single most expensive purchase you make.  In order to make a good decision about a purchase, it is important to know the true worth of the asset.  For more about whether or not to use a PIW read: Should I get a Property Inspection Waiver?                                                                                                                                                       
2. Pre-Listing Appraisals- There are some situations where obtaining an appraisal prior to listing would be a reason for an appraisal.  If your property is unique and there are not many similar homes selling in your area, then a qualified real estate appraiser would be the best resource for you.  It could be that you have completed recent remodelling and improvements to your home but don't know how much value these improvements add to the value of your home. Also, you might need an appraisal for negotiation purposes when selling.                                                                
3. Estate Tax Appraisals- Another reason for an appraisal is for settling estates.  Often these appraisals are performed retrospectively, meaning they determine the value of the property associated with an estate at the date of death rather than the current market value.                                                                                         
4. Divorce Appraisals- Unfortunately, not every story has a happy ending and when the ending is divorce an appraisal may be needed if the court is dividing up assets. An independent appraiser can determine the fair market value of the property that is being divided in the divorce.                                   
5. Tax Appeal Appraisals-The county appraisal district assesses the value of your property each year to determine the amount of real estate taxes you owe.  Sometimes,  the assessed value may be much higher than it should be.  In this case, you can appeal the tax assessor value with an appraisal of your property.   Appraisal districts determine value by using a mass appraisal process where it looks at all of the properties in an area.  This is where an independent appraiser could determine the market value of your particular home if you are needing to appeal.  

These are just a few of the different reasons you might need an appraisal.  There are other reasons you might need an appraisal.  What would you add to this list?  Know that if you are obtaining an appraisal from a professional licensed real estate appraiser, he or she is qualified and has had extensive training in order to perform an appraisal.  

Do you need an appraisal?  Have any questions about real estate appraisals?  Please contact us at the DW Slater Company and we would be glad to assist you!  www.dwslaterco.com 

Helpful Resources: 

Should I Get a Property Inspection Waiver? --Birmingham Appraisal Blog 

How the Appraisal Works in the Home Buying Process-- DW Slater Company Blog 

Reasons For Getting A Home Appraisal--Home Appraisals, Inc.

Why do I need an appraisal when I’m getting a divorce?--Birmingham Appraisal Blog 

Understanding how it works to appeal property taxes--Sacramento Appraisal Blog 

Have Confidence in the Professional, the Appraiser --DW Slater Company Blog