Appraisal

Appraisal: Definition, How It Works, and Types

What is an appraisal?

An appraisal is a professional, independent estimate of an asset’s fair market value. Appraisals apply to real estate, businesses, antiques, collectibles, and high‑value personal property. They are commonly required for mortgages, insurance coverage, taxes (including charitable donation valuations), estate settlements, and sales negotiations. Appraisers are typically credentialed or licensed by the jurisdiction in which they work.

Why appraisals matter

• Ensure lenders don’t loan more than an asset is worth, protecting against losses if a borrower defaults.
• Support insurance claims and establish replacement or agreed values for high‑value items.
• Provide objective valuations for tax reporting, estate division, and legal disputes.
• Help buyers and sellers set or negotiate realistic prices.

Common valuation approaches

Appraisers use one or more methods depending on the asset:
* Comparable sales (market approach) — compare recent sales of similar items or properties.
* Cost approach — estimate how much it would cost to replace the asset minus depreciation.
* Income approach — value based on the asset’s expected future income (used for rental properties and businesses).

Types of appraisals

Home appraisals

A home appraisal estimates a property’s market value considering condition, age, location, size, and features. Lenders require most appraisals for purchase and refinance mortgages to confirm collateral value.

Key distinctions:
* Appraisal vs. inspection — an appraisal assesses value; a home inspection assesses condition and identifies defects.
* Who orders and pays — lenders usually order the appraisal for mortgage transactions; the buyer typically pays the fee.

Collectibles, antiques, and personal property

Specialized appraisers value art, jewelry, antiques, and collectibles. Certified appraisals are recommended for insurance coverage, sales, donations, and estate settlements. Online or shop estimates can give rough guidance but are not substitutes for accredited valuations.

Insurance appraisals

Insurers may require appraisals for high‑value items before issuing coverage or settling claims. Some policies include appraisal clauses that call for a neutral appraiser to resolve value disputes.

Home appraisal process and timeline

1. Order: Usually triggered after an accepted offer; lender or broker often places the order.
2. Inspection: The appraiser visits the property to document interior and exterior features, take measurements and photos.
3. Research: Appraiser analyzes comparable sales, market conditions, and property-specific data.
4. Report: A written appraisal report with the estimated value is prepared and delivered — typically within a week to 10 days.
   If a buyer disagrees with a valuation, options include requesting reconsideration with the lender or ordering a second appraisal.

Cost

• Average single‑family home appraisal: roughly $500 (can be higher for large, complex, or multi‑family properties).
• Appraisers for antiques, art, or specialized items may charge hourly rates or flat fees; prices vary by expertise and complexity.

How to improve a home’s appraised value

• Clean, declutter, and stage rooms so spaces appear well cared for.
• Make minor repairs (fix leaky faucets, replace broken fixtures) and refresh paint where needed.
• Improve curb appeal: tidy landscaping, remove debris, and maintain entryways.
• Prepare documentation of recent renovations, permits, and upgrades to present to the appraiser.
  Avoid major, costly renovations solely to boost an appraisal; many do not yield proportional increases in appraised value.

Common questions

• Is an appraisal required to buy a home? — Usually when financing with a mortgage; cash purchases may not require one.
• Can buyers or sellers attend the appraisal? — With the appraiser’s permission, buyers, sellers, or their agents may attend, though it’s less common.
• What if an appraisal is low? — Renegotiate the price, pay the difference out of pocket, request a reconsideration, or obtain a second appraisal. Financing alternatives (e.g., different loan structures) may also be considered.
• Do you need an appraisal to refinance? — Typically yes, except for certain streamlined government programs (e.g., some FHA streamline refinances).

Bottom line

Appraisals provide an independent estimate of value that plays a crucial role in lending, insurance, taxation, and sales. Working with qualified appraisers and preparing clear documentation of an asset’s condition and improvements helps ensure accurate and fair valuations.