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What is an Appraisal | HomeStreet Bank

What is an appraisal?

Appraisals play an important role.

Appraisals can make or break mortgage transactions. So what are they and why do they matter?

An appraisal is a report that provides the current “estimated market value” of a property. The estimated market value assigned to the property helps determine if they home's sales price or refinance value basis is supported. The appraisal is performed by a qualified and impartial third party. The cost of an appraisal can vary by state, location and unique property characteristics, but typically runs in the $450-$1,500 range and is paid by the borrower.

The estimated market value is assessed using several methods. The condition of the property, both inside and outside, is evaluated. The quality of the property is then compared to other homes in the area. The sales price of similar homes that have recently sold will help benchmark the property in question.

On purchase transactions, appraisals are often ordered by the lender after a buyer has signed a purchase agreement. Once the appraiser has visited the property, they will report the estimated market value to the lender and real estate agent. The purchase of the home and loan approval is often contingent on an appraisal that confirms the home is not priced higher than the estimated value.

The transaction can move forward if the sale price of the home is at or lower than the appraised value. If the price is higher than the appraised value, most lenders will be unwilling to move forward with loan approval unless the borrower is willing to make a larger down payment. In some cases, an appraiser may submit conditions for improvements which could permit an increase to the estimated value of the home. It’s the seller’s discretion to make those improvements. If the seller chooses to do so, the lender can order a second appraisal to reassess the original valuation.

Similarly, on a refinance loan, the appraised value is used to determine the estimated market value and subsequent equity position of the loan terms to be refinanced.

The borrower will receive a copy of the appraisal report for their records.

All loans subject to approval.

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To learn more, contact a home loan expert.

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