The home appraisal plays a key role in the home buying process, for both a purchase and a refinance.

A home appraisal is an unbiased, professional estimate of a property's value. Property value is based on such factors as size, location, amenities, structural condition, new features the owner has installed, and even recent sales of similar properties in the local area. The appraiser, who is a third-party certified or licensed contractor, also looks for any defects in the home, and if necessary, recommends repairs to be completed prior to loan closing.

A mortgage lender uses the appraisal to make sure it’s not lending too much money to the buyer that it couldn’t get back through a sale if the buyer defaults.

Appraisals are also important to the home buyer, because they help reassure the buyer that the price he or she is paying isn’t significantly above market value.

In a purchase transaction, the appraisal is used to confirm whether the purchase price is a true market value. In a refinance, the appraiser assesses the value based on market conditions and comparable sales, with no consideration of the loan amount or value estimate of the borrower or the lender.

What homeowners often fail to realize is that the lender has no input in this aspect of the loan transaction. Appraisers may be recommended by a lender, but are not affiliated with the lender.

Appraisals typically take a few hours and cost a few hundred dollars. The buyer normally pays the appraisal fee at closing, although you can opt to pay it up front.

Further, when the appraisal value is lower than expected, the transaction can be delayed or even canceled.

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