What Is the Purpose of an Appraisal?

I’m selling a penny for ten dollars. It was minted a month ago, is very shiny, will look good enclosed in glass, and will undoubtedly be a source of pride for you.

Would you like to buy it?

No, of course not! Why? Because the market value of that penny is one cent, not ten dollars. If you gave me ten dollars for my newly minted penny, you’d be paying me $9.99 more than it’s worth. Shininess, newness, and display-ability do not meaningfully impact the value of the penny.

Assessing the market value of a new penny is straightforward, but assessing the market value of a home is much less straightforward. That’s why mortgage companies insist on having a house appraised before a real estate transaction can be completed. Appraisers who are licensed by individual states and work as an objective third party conduct appraisals. Appraisals are very detailed reports and often include information such as side-by-side comparisons between the house involved in the transaction and three similar homes, an evaluation of the real estate market, and notes about issues the appraiser feels will decrease property value.

All things considered, paying for an appraisal is in the buyer’s best interest. A good appraisal will ensure that you’re getting the best value for your dollar – all hundreds of thousands of them.