An appraisal is the process by which an individual, typically a third party, determines the value of a specific property. Common types of appraisals include commercial and residential properties, land value, and vehicles.
Appraisals are of particular importance for those seeking to purchase a commercial or residential property. Because most people finance large purchases, such as these, private investors and/or banks must evaluate the prospective property to ensure that the value of the loan and the sale price of the property are appropriate. For example, if person A is looking to finance a $250,000 private residence, but his bank appraises the property for only $221,000, there is a 29,000 deficit. This means that the seller of the property will have to lower the sales price to $221,000 or person A will need to have the cash or liquidity to cover the difference in price. Thus, appraisals serve an important purpose for both lenders and borrowers. Appraisals ensure that consumers are not being taken advantage of, while allowing lenders to have a thriving, prosperous business within the scope of federally mandated guidelines.
The cost of appraisals varies significantly by region and property type. More expensive properties have a more extensive review process, naturally. A typical range for appraisals is $200-$500. Therefore, larger homes or estates will likely come with higher price tags. However, there are many appraisal companies and one can typically request a quote range over the phone.
Please note that the appraisal process differs for each bank. Some banks will roll the appraisal costs in the loan, some will work with a specific appraiser, and some may offer incentives to work with particular appraisers. Be sure to speak with your loan officers about the specific requirements in your loan.
The home-buying process can be stressful but appraisals are one element that is worth the cost, but please shop around.
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