When you set out to look at houses and the help of a professional, knowledgeable real estate agent, you have to know if the homes you are looking at are worth the prices the sellers are asking. This is a tedious but important part to buying a new home and it could be easy to overpay for a piece of property. A home appraisal is a review of a house that determines a house’s actual market value. Your agent understands market values and how to sell houses, so make good use of their expertise in this regard.
A formal home appraisal is a further step where a trained professional comes in and looks at a house to determine a formal valuation of the property. This cannot happen until you have applied for financing with your lender. This all follows the accepting of the offer by the seller and a purchase agreement is signed. The formal appraisal will be ordered by your lender to act as a neutral third party to assess the true value of the home. This protects their interests in case the buyer defaults on the loan in the end.
If a buyer defaults on a mortgage, the lender must take possession of the house and sell it immediately. The formal home appraisal will give them adequate information to help them do this. Their goal is to create a loan that is less than that value, so that in cases of repossession, they can sell the house to make up for the loan and the money it took for expenses of reselling. This is their biggest order to the buyer and once they are reassured of the value of the home, the commitment letter is that much closer to finalization. As always, apply to multiple lenders for a loan to maximize the best possible interest rate, which will save you thousands in the years to come over the period of the mortgage.
Acquiring the services of a home appraiser (or surveyor), whether it is by yourself or your lender (usually both) is key to providing everyone with accurate market information about the value of your potential home. Without this information, the bank has no idea what to loan you and you have no idea if you’re receiving a good deal or being ripped off. This is just one of the many legal checks and balances set in place to make the business of dealing in real estate fun and fair for every party involved.