An appraisal is a professional valuation of a property used to help a lender judge whether the collateral supports the mortgage.
An appraisal is a professional valuation of a property used to help a lender judge whether the collateral supports the mortgage.
An appraisal matters because mortgage lending is not based only on the borrower’s income and credit. The lender also wants evidence that the property value reasonably supports the loan amount.
It also matters because borrowers sometimes confuse appraisal with inspection or with the contract price itself. An appraisal is a lender-centered value opinion, not a guarantee of condition and not simply a copy of the negotiated price.
Borrowers usually encounter the appraisal after application and early underwriting, once the lender is ready to evaluate the property backing the loan.
The appraisal becomes especially important before Closing because a value shortfall can affect approval, leverage limits, and the amount of money the borrower must bring in.
A buyer agrees to pay $450,000 for a home. The lender orders an appraisal to determine whether the property value supports financing at the requested level.
An appraisal differs from Appraised Value because the appraisal is the process and report, while appraised value is the value conclusion that comes out of that process.
It also differs from Assessed Value. Assessed value is tied to property-tax administration, while an appraisal is used in the mortgage and valuation process.