A home appraisal is similar in purpose to all other types of appraisal: to determine worth.
In the case of a home appraisal, a lender hires someone to find out what a property is worth. The lender wants to ensure that the property is worth the purchase price it will be funding.
One aspect that makes the home appraisal unique is an intermediary. When a home is appraised, the person who does the appraisal and the lender ordering the appraisal may have no direct contact with each other. There is an intermediary called an appraisal management company, or AMC, that coordinates the two. This is to avoid any type of influence on the appraiser by the lender.
Once hired, the appraiser has the job of researching other, similar properties that have sold recently in the same area. These properties are called comparables. The appraiser researches these comparables online before visiting the subject property.
After the visit to the subject property, the appraiser makes adjustments to its value, given the comparables, based on things such as lot size, number of bedrooms, number of baths, and any upgrades or renovations on the home.
During the subject-property visit, the appraiser also inspects the property for signs of disrepair, such as a leaky roof or mold. Some items may be significant enough to require correction before the lender will agree to lend money against the property.
An appraisal, however, is much less thorough than a formal home inspection, which goes into great detail with respect to the electrical, plumbing, and heating and air conditioning systems of a property.
Once the appraiser determines a value, he or she submits a report to the AMC, who will then submit it to the lender. The lender is able to question the findings if it disagrees with them, but this must be done through the AMC.
For more information on this process, contact your mortgage professional.