Home Appraisal

A detailed estimate of the value of a specific property by an independent third party, called an appraiser. Appraisers are licensed by states after completing course work and training that familiarizes them with the real estate markets in which they work. Many appraisers are members of the Appraisal Institute, an association with its own professional designations and code of standards and ethics.

An analysis that can be performed by one of three methods. One, called the "cost method," considers the estimated replacement cost of improvements, minus such factors as material deterioration, and then adds in the value of the land. A second approach, called the "income method," is used for properties that produce income and is based on the amount of income the property can produce. A third, called the "sales comparison method," makes a comparison to similar properties nearby that have recently sold. The latter is generally considered the most accurate for appraising a residential property.

A number that can differ significantly from the comparative market analysis, or CMA, provided by a real estate agent, though experienced agents' estimates are often very close.

A number that also differs from an assessment, which is a measure of value for taxation. Assessments are done by governments, appraisals by private companies.

A practice intended to protect lenders so they won't lend more than a house is worth. The appraisal is the only valuation report a bank will consider when deciding whether to lend money against a property.

A practice that can also protect buyers from paying too much for a property.

An expense that the buyer must pay in a home sale, even though the appraiser is usually chosen by the lender. Home appraisals typically cost about $350.

A result that can block a deal, if the number comes in lower than the sales price. When that happens, it's back to the negotiating table for the buyers and sellers. Either the sales price must come down, or the buyers must bring more of their own money into the deal.

An important protection that can be circumvented when the appraiser is pressured by those with a financial stake in the deal, such as the mortgage broker, seller or real estate agents, to "make the number."