An appraisal is an unbiased, professional opinion of property value.
An appraisal must be less than or equal to the purchase price of the house. Banks generally will not give more money than the home is worth and will only approve a loan for a home that is appraised for full sales price or more.
In this way, the house will serve as collateral in case the owner cannot pay the mortgage. If this is the case, the bank can perform a foreclosure.
When you are asking a bank to lend you $400,000, they want to make sure that what you are using that money for is worth $400,000. If you don’t make the required payments on the mortgage, eventually the bank will have to foreclose on the property. That means that the bank will sell your home to satisfy any outstanding value on the mortgage that you have not paid back to them. Lenders make their money on interest usually pre-determined at the time of approval. This is considered when the bank forecloses on the home, and the appraisal will have to show the subject properties value as being able to cover the lender’s investment if you cannot.
As you may be able to tell, the appraisal stage of real estate transactions is the lynchpin to the success of the transaction for both the seller and the buyer. In fact, whenever you are collateralizing your home, or real property, the appraisal process will determine if the lender decides to extend the value of the loan to you or if they cannot justify the risk. A LOT depends on this, and you don’t need to know what to do if you think you have been the victim of an inaccurate or negligent appraisal, but you do need to know who to call, and that’s an experienced attorney who has intimately dealt with the appraisal process before.
The most common reason for conducting a home appraisal is in the purchase of real estate. A home buyer (not the person selling the property) will pay for an independent and unbiased, New Jersey licensed- home appraiser to conduct an official assessment on behalf of the mortgage lender to properly determine and conclude the fair market value of the real estate. Mortgage lenders will not finalize any lending of mortgages for homes they do not know the fair market value for, solely because they do not want to give more money than they must.
Lenders must rely on the appraiser’s ability to remain objective in the appraisal, as well as their ability to support each observation in their appraisal. The appraisal report includes:
The homebuyer will typically pay the cost of the appraisal at the closing as part of the closing costs; however, arguments can be made for the lender’s ability to collect this fee as soon as possible. Some lenders collect the fee upfront to ensure that the buyer is serious about following through with the transaction. More importantly, if the buyer is suddenly not interested or ineligible, the appraiser must be paid by the lender. When and where the fixed fee is paid for the appraisal truly depends on the mortgage lender.