Common Appraisal Myths

When buying a home or refinancing, the mortgage lender will most likely require that the house be appraised. Appraisals are an infrequent experience for most consumers and, as a result, there tend to be misconceptions about the process and results. Below are a few of the common myths and realities surrounding appraisals.

 Myth #1: “The primary purpose of an appraisal is to make sure the buyer does not pay too much for the house.”

 Reality: An appraisal provides valuable information for the buyer and the seller, but its primary purpose is to provide the lender with an independent analysis of the property’s value. Lenders utilize the appraisal to determine if granting a loan is a safe investment. That is why the appraisal is made before the lender grants final approval of the buyer’s loan.


Myth #2: “Appraisers use a specific formula (e.g. price per square foot) to determine exactly how much each home is worth.”
 Reality: Appraisers consider many factors, including location, square footage, lot size, condition, and recent sales prices of comparable properties, when determining a home’s value.


Myth #3: “An appraisal is identical to a home inspection.”
 Reality: An appraisal is not a substitute for a professional home inspection. The appraiser formulates an opinion of the property’s value for the lender, while the inspector evaluates the condition of the home and its major components.


Myth #4: “If the appraised value is lower than the purchase price, the buyer will not be able to purchase the home.”


Reality: A transaction may survive a “low” appraisal if the seller reduces the purchase price, the buyer makes a higher down payment, or repairs are made which increase the value of the home.


Myth #5: “The Shelby County tax reappraisal is the same as a lender’s appraisal.”


Reality: Tax appraisal values are based upon a neighborhood average of comparable sales information, property usage, and general characteristics. A lender’s appraisal takes into account more specific information (such as, condition, improvements, and custom features) about the property and how it compares to similar properties that have recently sold.

 Myth #6: “All appraisals are the same.”


Reality: Appraisers need to know the purpose of the appraisal. Sometimes owners ask for an appraisal without telling the appraiser that they are seeking a sale price for the property. A home may sell for less than the appraisal price due to such factors as market conditions and competition with other homes.

If you have more questions about the appraisal process, contact me.


Original article courtesy of The Commercial Appeal Advertising Department.