Appraisal: For What It's Worth

If you've just purchased your first home, you probably have a pile of paperwork on your house. Within it you might see a large packet entitled "Appraisal." What in the world is that? An appraisal is an estimate of your new home's value. Conducted by an appraiser, it ensures that the lender is not loaning more than what the home is worth and that you, the buyer, are not paying more than what you should.

When conducting an appraisal, the appraiser will inspect the size, condition, quality and amenities of a home and compare them to those of other homes in the area. They will then create a report of those features and determine the home's value. The value will generally reflect what other properties in the neighborhood are selling for. However, there may be some variations. Homes with four bedrooms, for example, will generally be valued higher than homes with three bedrooms, while homes that have recently been updated will generally be valued higher than those that haven't.

Sometimes an appraiser may determine the value of the house to be less than the asking price. If this occurs, the seller will either have to lower the price or the buyer will have to increase their down payment to make up the difference. Of course, as with anything else, mistakes can be made, so if the appraisal comes in too low, double-check that the appraiser did not make any miscalculations.

Remember, an appraisal is an estimate of value. It is not, and should never be, a replacement for a whole-house inspection. If you are purchasing a home, you will be required by the lender to have an appraisal and you should arrange to have a whole-house inspection. The inspection may uncover problems that the appraiser did not notice.

An appraisal generally costs between $200 and $500, but the price is worth it just for the protection it provides for both the lender and the buyer. For just a few hundred dollars, you can save thousands of dollars later.