Appraisal

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There are generally two situations in which appraisals are made. The first is when you are buying real estate; the property is evaluated by an expert ( appraiser) in order to see how much it is worth. Why is this done? Because if you need a mortgage, the mortgage lender will only lend you the money after it examines the house to see that it's really worth the amount you are about to pay. The lender needs to know this because if you default on the repayments and the lender repossesses the house, it wants to be sure it can get its money back if the house has to be sold. The lender will usually send one of its own appraisers to take a look. The appraiser will probably take photos, make lots of measurements, and generally examine the property closely. If the appraiser doesn't think it's worth as much as you plan to pay, then you have a problem. Your prospective lender may decide either not to lend you any money at all or to lend you only as much as the lender thinks it's worth. You will also almost certainly need your property appraised if you decide to refinance your existing mortgage or if you take out a home equity loan. An appraisal should not be confused with an inspection report even though they both involve people taking a close look at a piece of property; appraisers and inspectors are looking for different things. The second time you might come across an appraisal is when you buy homeowners insurance. The insurance company might send an appraiser out to perform an appraisal to see how much the property is worth, so you don't insure it for too much or too little. This is important because if you insure it for too much, there is an element of moral hazard; if you insure it for too little, you may not be paying a high enough premium.