After your initial document review has been completed and you have been pre-approved, the next step is a property appraisal.

What is a property appraisal and why is it so important?

A major part of the home sale process is the appraisal. No matter how much a seller wants for his home, or how much a buyer is willing to pay for a home, in the end, it all comes down to the appraisal.

A property appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth. All lenders order an appraisal during the mortgage loan process so that there is an objective way to assess the home’s market value and ensure that the amount of money requested by the borrower is appropriate.

While appraisals can vary by state, there are three main parts to a home appraisal:

1. The inspection – A licensed appraiser comes to the property and inspects it to determine a fair market value
2. Research on comparables – After the inspection, the appraiser researches similar homes in your area and compares recent sales to determine the market value
3. Final appraisal report – using the data gathered from the inspection and comparables research, the appraiser issues a final appraisal report

Several determining factors influence an appraisal:

• The condition of the housing market
• Property location and neighborhoods
• Compared value of similar homes
• Physical condition
• Amenities
• Number of bedrooms and bathrooms
• Age and design
• Overall appearance, interior, and exterior
• Energy efficiency and appliances

Before arriving at a final decision, the appraiser must complete a considerable amount of market analysis, in addition to property specific research. There’s also the need to precisely define the purpose of the appraisal. There are, for example, various types of value — including fair market value, insurance value, tax value and value in use.

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