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A real estate appraiser is an individual who evaluates the market value of real estate property. The market value is an estimate of what the home could reasonably sell for, if placed on the market. A mortgage lender will typically request an appraisal of a property during the home loan process, to determine an accurate value of the property that a mortgage loan is being applied for.
When a mortgage loan is originated, the property serves as the collateral for the loan. If the borrower defaults on the loan, the lender would sell the home to recoup some or all of the money that was originally loaned. Therefore a lender will use an appraisal to ensure that the property is, at the minimum, worth the amount of the loan.
For example, if a person is purchasing a home for $100,000 US Dollars (USD) and will need a mortgage loan of $100,000 USD to purchase the home, the lender will use a real estate appraiser to determine whether or not the home is worth at least $100,000 USD. If the property is valued at or above the loan amount, the home loan will typically be approved and originated, as long as all other underwriting requirements are met. If a real estate appraiser determines the value of a home to be less than that of the desired loan, the loan may not be approved without specific conditions being met. This makes the property appraisal an important and critical element of the home loan process.
Appraisers generally use two different methods to determine the value of a home. The first method compares the subject property with recent sale prices of comparable homes in the area. The second method is used mainly for new construction where there is not a reliable or consistent record of comparable sales in the area. Using this method, the real estate appraiser determines the replacement cost of the subject property if it were destroyed.
A real estate appraiser may work for the mortgage lender, an affiliated company or may be a separate and independent third-party. Whether or not the appraiser works for the mortgage lender or is independent, it is important that the appraiser be an individual who has no personal interest in the mortgage loan or the subject property being appraised. It is also essential that the appraiser provide an objective, unbiased estimate of the subject property's value. Individual borrowers may also be able to use a real estate appraiser of their choosing, although the appraisal will generally need to be reviewed and approved by the lender.
A real estate appraiser is licensed and certified according to requirements typically set by the local government. While the time required to become an appraiser can vary, an individual looking to become a real estate appraiser should plan on at least two years of education before meeting the requirements to take the certification examination. Once the certification process is completed, the candidate is able to work as an appraiser.
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