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Why Does My Lender Require an Appraisal?

An appraisal is a tool used by lenders to insure they don’t loan on a house for more than they could foreclose on it in the event you fail to make your house payments.  An appraisal does not prevent you from paying more than the appraiser’s value.  You will simply need to pay the difference in cash at closing.

The appraiser first looks at the data on the house, such as the lot size, square-footage, location and condition.  Then the appraiser looks at the comparable properties in the area that have been sold in the last six months. Finally, the appraiser will calculate the value of your home by adding or taking away dollar amounts based on the sold competition.

Appraisals are no substitute for a home inspection. An appraisal merely informs the lender of the property's value, but a home inspection alerts the buyer to any potential problems in the home. While appraisers are required to tell the prospective buyer about defects in a home if the buyer is applying for an FHA loan, no other loans require this disclosure.