Real Estate Glossary > A > Appraisal Definition

The estimation of a home's market value by a licensed appraiser based on comparable recent sales of homes in the neighborhood. A loan underwriter An individual working for mortgage lenders and brokers who determines whether or not a borrower's loan is approved. compares this appraisal price to the agreed-upon purchase price to ensure that the value of the home is equal to or greater than the purchase price. Loan financing may fail if the home appraises at a price less than what the buyer and seller agreed upon. If this happens, the buyer may want to re-negotiate with the sellers to determine a lower purchase price.

A set of federal guidelines called the Home Valuation Code of Conduct (HVCC) took effect on May 1, 2009. This Code affects all conventional conforming loans Any type of mortgage loan that adheres to loan amount limits set by the government-sponsored institutions Fannie Mae or Freddie Mac. backed by Fannie Mae A private company and government-sponsored entity that buys loans from mortgage lenders, packages them together and sells them to outside investors to make sure they have funds to continue buying loans. and Freddie Mac A government-sponsored entity that buys loans from mortgage lenders, packages them together and sells them to outside investors to make sure they have funds to continue buying loans. . It doesn't apply to borrowers with Federal Housing Administration Loan A loan with a low down payment and competitive interest rates that is insured by the Federal Housing Administration, a government agency that that provides funding for these loans from mortgage insurance payments. or VA loans A special type of loan backed by the government and only available to veterans of the US military and surviving relatives. insured by the Federal Housing Administration A government agency that provides insurance for loans granted by FHA-approved lenders throughout the US. . The HVCC is designed to enhance the integrity of the appraisal process to make home appraisals more reliable and restrict the interaction between mortgage lenders and appraisers. Since May 1st, lenders can no longer deal directly with appraisers. Instead, lenders schedule appraisals through third-party management companies. This adds a buffer between the lender and appraiser, but it may also add time to the process.

An appraisal is different than an assessment The value assigned to a home based on a comparison of the prices of similar homes that recently sold in the neighborhood. . Assessments are conducted by a government employee who evaluates the value of the home to determine how much property tax The tax paid by homeowners to the government determined by an assessment. Homeowners pay this tax annually, semi-annually or as part of a monthly mortgage payment. the homeowner will pay.