An appraisal is a professional unbiased opinion of a home’s value. Appraisals are most always used in purchase-and-sale transactions and most commonly in refinance transactions, and are used to determine if the home’s contract price is appropriate given the home’s condition, location, features, etc. During a mortgage refinance transaction, a home appraisal protects the lender by ensuring that it doesn’t lend the homeowners/owners more money than what the property is really worth.

Usually, individuals applying for a loan are only interested in obtaining the loan and unfortunately are not worried about the prudence of buying the property at the agreed price. In fact, many purchasers will try to encourage appraisers to increase the appraised value so that they can purchase the home regardless of its value.

The majority of real estate appraisals are requested by mortgage companies to validate the property’s purchase price for loan purposes. Except for periods of very low interest rates when everyone is refinancing, most loans are for the purchase of real estate and ordered after a sale price is negotiated. Purchasers mistakenly assume that mortgage companies are looking after their interests in the purchase transaction.

The law states that if the mortgage company orders the appraisal, the appraiser is responsible only to the mortgage company. We expect mortgage companies to be prudent and they should be, but being prudent is protecting their interest, not necessarily the purchaser’s.