What Is an Appraisal?

Appraisals Explained in Less Than 4 Minutes

An inspector with a clipboard talks to a homeowner.
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An appraisal is a property valuation by a recognized expert who uses various accepted methods of establishing the value of an item, business, or piece of real estate. Appraisers spend time researching how the markets for various property types ebb and flow. They know how an item’s condition affects its market value.

Appraisers exist for everything from houses to antiques, but you’ll want to find one who has significant experience and good credentials. A reputable appraisal can play a role in how you get financing for a purchase, especially with real estate.

Definition and Examples of Appraisals

Appraisals are valuations of objects or possessions made by credentialed professionals who have many tools for evaluating and establishing a value that is likely to hold in the current market.

For high-value possessions, it can be difficult to separate your own sentimental evaluation of value from what an eligible buyer is likely to pay for it. Appraisers help to bring objective data to the process of setting a price or confirming a purchase price for financing.

For example, if you know your family member paid a lot for an 1890s antique wardrobe, you might be tempted to price it at a very high rate. Getting an independent antiques appraiser to evaluate it can give your pricing strategy credibility with people who shop for antiques. It can help guide your actual price. Otherwise, you might sell it for too little, leaving money on the table, or over-price it and get no interest from buyers.

Homebuyers who want to get a mortgage will need a home appraisal. An appraisal helps the bank or other lender to verify that the house would be valuable enough to help them avoid losses if a borrower defaulted.

How Home Appraisals Work

When you’re in a situation where you need an appraisal for home mortgage financing, you usually wait until you have an offer accepted by the seller.

At that point, your lender will find an appraiser with a strong appraisal credential and licensure or certification through the Appraisal Foundation. Licensures vary by state, but it is in all parties’ best interests for the appraiser to be both credentialed and impartial.

This appraiser will evaluate many factors related to the home, both inside and outside. They’ll look at past sale history, comparable houses in the area and their recent sales prices, and take into account any upgrades or damage on the home in question. Then they’ll generate a lengthy report that justifies their final appraised value.

The home appraiser’s value should be around the sales price, or even a little higher, to be ideal to the buyer. When an appraisal is lower than the sales price, the buyer and the seller have some decisions to make.

Many lenders only offer a loan up to the appraised value of the house, requiring the buyer to pay cash for the difference. A very low appraisal can also change the buyer’s mind about buying the home.

Types of Appraisals

You can get appraisals for a variety of items, such as:

  • Jewelry: This includes precious gems and metals.
  • Antiques and collectibles: In specialized markets, independent appraisers can help you understand the value of antiques and collectibles. For example, classic car appraisers can estimate the value of an antique car.
  • Other items: Insurance-related appraisers help verify that the objects you own are worth the value for which they are insured. If a piece of art is destroyed in a natural disaster, for example, the insurance company may not take your word that it was worth $2 million if you didn’t have an appraiser evaluate it.

Do I Need an Appraisal?

If you are buying a home with a mortgage, you’ll usually have to get an appraisal to secure financing. If you want to sell a collectible or antique, an appraisal can help verify its value for potential customers. Consider getting appraisals for objects of substantial value that you wish to insure in a home insurance policy.

Are Appraisals Worth It?

It is often worthwhile to get an appraisal for the peace of mind it offers by insuring it for the correct amount. An official appraisal can play a key role in the sales process of an item, whether it’s jewelry or a home. An appraisal may not be worthwhile for an item with high sentimental value that isn’t actually going to be sold or insured.

Key Takeaways

  • An appraisal provides an objective of an item’s value from a professional who has experience with valuing property.
  • A professional appraisal can cost from a few dollars for a simple item up to hundreds of dollars or more for a complex real estate appraisal.
  • Choose an appraiser with credentials in your state because both lenders and buyers will want to know the appraisal has merit.