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Most finance companies would require that you get a real estate appraisal to establish the value of the loan that they can provide. If you are applying for a loan with 10% down, it will mean that the bank will only lend 90% of appraised value, no matter what the price you agreed upon with the seller was.

In order to establish a valid real estate contract, the appraisal must support the agreed upon selling price. You may have to open fresh price negotiations with the seller if the home does not appraise out for the agreed price. The buyer is not obliged to buy and the seller is not obliged to sell. The customer does not have to buy while the seller does not have to sell.

In the currently depressed housing market, the appraisal can be critical to determining the value of a residence. In the pre-crisis days, if you able to conclude a exchange for a residence at a price that just covered the loan, you could assume that you were getting a good bargain because the owner was giving up his residence equity. Now, that can mean that he owes twice as much as the residence is worth, in some locations of the country. Everybody involved in the transaction should be familiar with the appraised value of the residence even if you are paying cash. You can always use the appraisal in an emergency to raise money by a quick sale or a home equity mortgage.

The appraiser will take different issues into consideration. If your real estate broker has prepared a current market analysis, or CMA for listing the house, that is also taken into consideration in the appraisal. “Comp sales” or comparable sales are often used in appraisals way the current market value is estimated on the basis of the prices that similar residences in similar areas have fetched in the recent past.

Another basis could be replacement cost in which the built-up area, quantity and type of construction and the each of the house are all taken into account. The appraised price would be adjusted by adding values for the positive features such as improvements and subtracting values for the negative features such as substandard items.

An appraisal protects everybody concerned. Some purchasers may want to proceed with the sale even if the price is not fully substantiated by the appraisal. If customers wish to proceed, they should remember that they have come up with the entire difference between the mortgage available (which would be based on the appraised value) and the price agreed with the seller.

Once an appraisal is done on your potential house, it will let you know the value at the time it was appraised, but that doesn’t mean that a house’s value can’t decline within a year of purchase, due to market conditions. It is important to note that appraisals are usually a guideline that can be used for six months, but not much longer, so if you plan to refinance or get a house equity loan, you might be subject to another appraisal that won’t turn out the same, depending on the comp sales and market. It is still the best way to ascertain a residence’s value accurately.

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