Today we examine the questions: “What is an Appraisal?”, “Who is the Appraiser?” and “What is Appraised Value?”

What is an Appraisal?

An appraisal is the report given to your new lender which will tell the lender how much they think the home is worth.  This is the breaking point of most financed home purchases, since the appraisal determines how much the bank is willing to loan you for the home.

An appraisal happens after your offer is accepted by the seller, and you have officially applied for a loan on the property.  This is the time in between the offer, and closing.

Who is the Appraiser?

The appraiser is a neutral 3rd party who enters the transaction at the time you apply for the loan.  They are independent of the bank, real estate sales brokers, and title company.  The appraiser’s job is to look at other homes that have SOLD in the neighborhood of your desired new home, and determine if the bank can afford to give the new home owner a loan for the house.

After they have researched recently sold homes in the area, they will report their findings to your bank or lender, and give them a value which is the “Appraised Value” (see below).

What is Appraised Value?

This is the number value an appraiser submits to a lender for you to obtain a loan.  Let’s use an example to illustrate some of the specifics: (these are made up numbers, not an actual sale)

  • $210,000 – Listing Price
  • $200,000 – Accepted Offer Price (nice work!)
  • 5% Down payment = $10,000
  • Loan Amount = $190,000
Now that you have some information on the house and what type of down payment you’ll be making, it’s time for the appraiser to come in and look at some comparable sales in the area:
  • $204,500 – SOLD House 1
  • $196,750 – SOLD House 2
  • $203,900 – SOLD House 3
Using these comparable sales numbers, the appraiser is able to determine that the Appraised Value of your new home is:
  • $202,500 – Your New House’s Appraised Value
Congratulations – The appraisal came back at or above the value of your Accepted Offer Price, which means the bank can give you the loan, and you can move into your new house after closing.

If the Appraised Value would have come back at a lower number, say $188,900 for example, you would have to re-negotiate the Sale Price with the seller, because the amount you agreed upon initially cannot be supported within the market at this time.

One Final Note: Value is a term that is loosely thrown around in the real estate business.  Be aware that there are differences between Appraised Value, Tax Assessed Value, and Market Value.

  • Appraised Value is the price that the lender will allow you to buy the home at.
  • Tax Assessed Value is the estimated worth of your home in the eyes of your County Government (determined by the tax assessor).
  • Market Value is what a willing and able buyer is paying for the home.

Keep checking back on more Word of the Week info and Real Estate Terms.

Steve Howe is a First Time Home Buyer Specialist working with the Minnesota Real Estate Team. If you have questions about owning your first home, or would like to get more information about the process, fill out the contact form to receive Tips and Advice on getting a loan, searching for properties, and writing an offer.

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2 Responses to Word of the Week: Appraisal

  1. Steve,

    Great post… Its good to see technical articles on real estate. There are far too many blog posts that are self promotion rather than technical info.

  2. Steve Howe says:

    @Downtown Vancouver Real Estate Blog: Thanks Mike. Just got into the whole blogging thing this year. It’s a great way to keep buyers and sellers informed on a personal level, and also educate them without having to pressure sell.

    If you like what you read, feel free to link to any articles and keep checking back. I’ll be posting every couple days this winter, and into spring for sure. Thanks again! – Steve Howe

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