U.S. home prices rarely fall during recessions, and the latest downturn follows that pattern.
What is appraised value?
The appraised value of a home is the value at a specific point in time as determined by a licensed appraiser. An appraisal is usually a step required to obtain a mortgage on a home.
A mortgage lender will require an appraisal on a home that a buyer hopes to purchase. This process ensures the lender that it’s funding the purchase of a home that’s worth at least as much as the home’s sale price. Because mortgages are secured by the value of the house itself, the lender wants to be sure that if the borrower stops making payments, it can sell the home to recoup its investment in the property.
To calculate the appraised value of the home, an appraiser will consider the current market conditions, including recent sale prices of similar homes in the area. The appraiser also will look at the size and features of the home, the general condition of it, and any potential risk factors for loss, such as termites or a leaky roof, to determine the home’s value.
The appraised value is used by the loan underwriting team to determine how much money it should lend to cover the purchase of the home. It is important to keep in mind that the loan-to=value ratio of the property must meet the lender’s specific requirements.
Appraised value example
Susan receives an offer of $180,000 on her home that’s listed for sale. The buyer’s lender requires an appraiser to come out to look at the home. The appraiser determines that, based on the home’s recent updates and overall features, the home is worth $190,000. In this case, the lender is likely to move forward with financing the purchase of the home as long as the buyer meets other qualifications.
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