You probably know how much you hope to buy or sell your next home. But there’s a crucial step in this process that’s less understood: appraisal. Appraisals are valuations of a home that aren’t subject to anyone’s whims or whimsies. They’re determined by recent sales in your neighborhood of similar types of homes as well as individual factors of your house—property size, exterior condition and interior condition.
They’re critical because banks will only allow a mortgage that’s equal to or less than the value of an appraisal. Appraisals that are less than the home’s contract offer enable a potential buyer to back out of the offer. Those that are higher are good for buyers, giving them more value than they expected. But remember: An appraisal isn’t the same as an inspection.
How much do you know about appraisals? Find out with this graphic.