If you have not sold a house before, or at least not for a few years, the appraisal process can be a little confusing. Here’s a breakdown of what an appraisal means and why they are a necessary part of buying or selling a property.
The appraisal occurs once you have accepted a buyer’s offer and the property is under contract. The buyer’s lender (that is, the bank or other institution who is giving them a mortgage) will arrange for an appraiser to check the property’s value against the price the buyer has offered for it. This is important because it may affect the amount of money the buyer can borrow and under what terms.
Appraisals are in essence a professional opinion and so can vary substantially depending on who conducts them,as well as when they are done and the market conditions at the time.
In general, appraisals rely heavily on looking at recent sale prices of similar properties in the same area which may not take into account emerging trends. Also, they do not take into account all of the factors which may come into play when the sale price of a house is determined, such as when the seller needs to sell their home quickly.
From the seller’s perspective, an appraisal may be used to estimate market value, or it could be taken into account when the sale price is set. Appraisals can also be used for the purposes of insurance, replacement and property tax.