If you are new to real estate, the terminology can be overwhelming. One term you will hear constantly is "appraisal." But what does it actually mean in a legal and practical sense?
The Definition
A real estate appraisal is an opinion of value. It is not a fact, but a professional judgment based on supportable evidence. It is a formal report created by a licensed or certified appraiser that determines the fair market value of a property as of a specific date.
It's Not a Home Inspection
This is the most common confusion.
- Home Inspector: Looks for defects. They test outlets, check the furnace, and crawl into the attic to find broken things. They tell you the condition of the house.
- Home Appraiser: Looks for value. They observe the condition to see how it compares to other homes, but their main goal is to tell you what the house is worth.
Why It Matters
The appraisal is the safety valve of the real estate market. It prevents lenders from lending more than a home is worth, which protects the entire financial system (and you) from bad debt. It ensures that the price you pay aligns with the actual market reality, not just a seller's wishful thinking.