In some situations, such as an approval for a loan or insurance policy, the property to be covered must be reviewed for its value. This is called an appraisal.
The goal of this task, which is handled by regulatory-approved individuals or companies, is to set a price for a piece of property, a business, or, most commonly, an antique. The estimated value is then used for taxation purposes as well as for approval of insurance premiums and loan amounts.
An appraisal is also used to determine the value of a home. When selling a property, the appraisal sets a value the home can be sold at without seeming too low or high. When purchasing a home, the appraisal is used to confirm that the property is worth the value the current owner is asking.
When a mortgage is in default or the home goes into foreclosure, an appraisal is used to help take the home off the market through a short-sale or foreclosure auction. For the latter, the bank reviews the appraisal amount and sets a suitable starting price at auction. As a result, they can either receive their asking price or, if necessary, take a small loss that can be quickly recouped.
The value a home is given also allows loan and insurance underwriters to create suitable programs for the buyer or seller. For the latter, how the home is appraised determines how much they provide to the homeowner when it comes to coverage. It may also set the deductible and premium costs.
An appraisal is different when it comes to antiques and collectibles. While a home valuation is usually done at the request of the mortgage or title company, the owner of the collection or family heirloom will hire a licensed professional to do an appraisal. Sometimes, professionals charge a one-time or hourly fee to examine the objects.
For an unbiased appraisal, owners shouldn’t go to collectible-shop owners for a review. They may provide the lowest estimated value to keep their overhead low. Instead, the appraiser should be a licensed subject matter expert who is not interested in selling your item. A listing of these individuals can be found through the American Society of Appraisers.
Insurance appraisal determines more than the value of the home itself. Once the homeowner has established themself in the property, they can provide the insurer with a list of items within the home. This includes furniture, electronics, and jewelry. This information allows the insurer to create an updated policy that covers these items.
There are two caveats to this. First, the homeowner needs to keep the list updated so the insurer can provide the proper coverage. Second, monthly premiums may increase due to the change in value. Third, if the homeowner has a large amount of high-valued objects, the property insurance company may ask them to get a separate policy to cover those items.