Appraised Value

An appraised value is an evaluation of a property's value based on a given point in time. The evaluation is performed by a professional appraiser during the mortgage origination process. The appraiser is usually chosen by the lender but the appraisal is paid for by the borrower.

The appraised value of a home is an important factor in the loan underwriting process and plays a role in determining how much money may be borrowed and under what terms. For example, the loan to value (LTV) ratio is based on the appraised value.

In general, if the LTV is greater than 80%, the lender will require the borrower to buy private mortgage insurance. If the LTV drops to 78% upon a new appraisal, private mortgage insurance payments may be eliminated.

The appraised value of a property can differ from the market value and even an agreed upon purchase price for a home. The market value for a property is the price that buyers are willing to pay to purchase real estate. For example, a buyer might offer $225,000 for a home that the seller marketed at $240,000. This could lead to negotiations between the seller and buyers with a potential compromise price somewhere in-between.

Those price levels could still differ from the appraised value that the lender will use to determine how much financing will be authorized toward the purchase.

Factors that can affect the appraised value of a piece of property include its curb appeal, any infrastructure issues that need to be addressed, the comparable sale prices for neighboring homes, and local crime rates. Proximity to less-than-desirable features could negatively affect the appraised value. This could include being located next to a source of noise pollution such as an airport or train station. If a property is in good condition, its appraised value may fall in line with similar properties in the surrounding area.

Property owners might seek to improve the appraised value of real estate by making improvements that go beyond general upkeep and basic repairs. For example, a homeowner might add a deck or patio to the property to increase the recreation options. Heating and ventilation could be improved with more energy efficient equipment. Smart controls can be installed that allow appliances, lighting and security systems throughout the home to be operated remotely and automatically. The garage could be expanded to accommodate more vehicles. Bathrooms might be upgraded with new showers or tubs. Kitchens could be renovated with new ovens, increased counter space and a garbage disposal system. Permanent upgrades that improve the enjoyment and use of the property can also increase the appraised value.