What is an Appraisal and Why do We Need One?

It’s an objective opinion of value. It is an art, not an exact science. Appraisals by different appraisers may differ. For buying and selling purposes, appraisals are done by a state-licensed appraiser and usually based on market value—what the property could probably be sold for right now in an “arms-length” transaction. Appraised value

Appraised value is not a constant number. Changes in market conditions can dramatically alter appraised value. Supply and demand can be affected by changes in interest rates, local job situations and unemployment rate, changes in zoning, tax laws, and other factors.

Lenders usually use either the appraised value or the sale price, whichever is less, to determine the amount of the mortgage they will fund. Lenders have begun tightening up on appraisals in this aggressive seller’s market and it is not unheard of to have a sale fall through because the house does not “appraise out.”

Most real estate agents do a Comparative Market Analysis (CMA) to recommend a selling price for a home. This is not an appraisal. The CMA takes into consideration not only the prices of homes recently sold, but also homes currently on the market, as well as expired listings (homes that didn’t sell). There is usually a price range within which it is appropriate to effectively price a home. Just like an appraisal, opinions can vary and therefore recommended list prices can vary.