If you are planning on purchasing real estate anytime in the near future, you are going to need to get an appraisal of the dwelling in question if you plan on getting a loan from any financial institution. There are several points to consider when it comes to ordering an appraisal and knowing the reasons behind it is imperative to your understanding the process.
Why is an appraisal necessary?
If you want a lending institution to offer you a loan, one of the first things the lenders is going to require is an appraisal. Appraisals are the best way for a lender or investor to verify that the property in question is worth what the seller is asking as far as sales price. Aside from that, appraisals can sometimes bring material issues to light regarding the property such as issues with the foundation, a roof that needs replacement or other structural deficiencies that can tally up to thousands of dollars in warranted repairs. Another such instance is if the property is a "flip" meaning that it was bought by the current seller for much less within the last 90 days and now has a substantially marked up selling price. In this case, some lenders require that two separate appraisals are completed to compare valuations. Lenders usually prefer to go with the lower of the two reports. Though it seems like this practice benefits only the lender, in actuality it benefits you, the buyer, tremendously by giving you a third-party evaluation of the property that you can now use as leverage to negotiate with the seller.
The hefty price tag associated with an appraisal, usually in the $300-$600 range, is truly a necessary evil that you should look at as an investment in your financial holdings. This appraisal gives you the best overall valuation of your investment and can stop you from making a costly mistake you are sure to regret later.