14. Mortgage Basics - Property Appraisal

Property Appraisal:

Because the property you are purchasing will be used to secure your loan, lenders employ professional appraisers to evaluate the property. The final appraisal will contain an estimate of your property's fair market value and will be an important factor in determining how much of a mortgage will be approved. If the appraisal falls short of the amount you are asking to borrow, then your application will be refused even if you are creditworthy, or you may be offered a smaller loan and be required to pay a larger down payment.

A professional appraiser is someone hired by the mortgage lender to evaluate your property. It is also possible to locate your own appraiser through professional organizations such as the Appraisal Institute or the American Society of Appraisers. Appraisers generally take into consideration how much it would cost to rebuild your home, and compare it with properties of similar size, quality and location when filing their report.

Before buying your home, ask your realtor for a Comparative Market Analysis (CMA). The CMA shows recent sales of properties in the neighborhood where you want to buy your home, and can provide you with an idea of a fair market value for your home.

If the property you are looking to purchase receives a low appraisal, obtain a copy of the appraisal report and go over it yourself. It's possible that the appraiser doesn't know the neighborhood property values, in which case you can put in a request for a reappraisal. Another option is to use the low appraisal as a bargaining device to renegotiate the price with the seller.