A real estate appraisal helps to establish a property’s market value – the likely sale price it would bring if offered in an open and competitive real estate market.
Your lender will require an appraisal when you ask to use a home or other real estate as security for a loan, because it wants to make sure that the property will sell for at least the amount of money it is lending.
Don’t confuse a comparative market analysis, or CMA, with an appraisal. Real estate agents use CMA’s to help home sellers determine a realistic asking price. Experienced agents often come very close to an appraisal price with their CMA’s, but an appraiser’s report is much more detailed–and is the only valuation report a bank will consider when deciding whether or not to lend the money. The appraiser should be an objective third party, someone who has no financial or other connection to any person involved in the transaction.