Before you can purchase your home you need to have an appraisal done to confirm the value of the property. This is to make sure that you pay the fair amount for the property and that the lender is paying you a fair loan amount for the property.

It is also good for you to know in the future, in case you invest or rent the property, and/or some day sell it. An appraisal is a standard way to determine how much your potential home is worth, and is done by a professional appraiser who uses national guidelines.

The appraisal can be done on the exterior of the home or both the exterior and interior. Usually if you are a first time buyer or the home is brand new, there will be a full inspection both inside and outside the home. It may be obvious that an exterior appraisal saves times and money, but remember that this is your new home. You want to make sure that you are getting the right price, as well as, a realistic assessment of the value. Once the appraisal is completed, the appraiser will give you and the lender a written report. It should outline the results of the appraisal using some different valuation methods.

First the appraiser usually comes up with a value based on the features of the property, such as the size, structure, lot, age and design of the home. This may sound like a subjective estimate, but in actuality it is extremely objective and clear-cut according to the industry’s standards. Remember that the appraisal is a professional who does this for a living on a daily basis.

The appraiser will also come up with what is called a “replacement cost.” Think of this as an estimate of the home that would be in your lot if your home were not. In other words, if the appraiser just saw the lot but your home was not built yet, how much does he or she expect a home built in that lot, one that is similar to yours in size and construction, to cost?

Next the appraiser will look around in the area at nearby homes that look like yours. These homes will be similar in size, design and construction and have some of the same features. The appraiser will look at what the homes are selling for as well as what the estimated values are for those similar homes. These similar homes are also called “comparables” and are extremely important in the appraisal process.

Some home buyers are surprised when their appraisal amount is the exact same as the amount in their sales contract. This is not uncommon.

The reason that the sales price and the appraisal price may be the same is because the sales price is the number that both you (the buyer) and the seller agree upon as a value for the home. This number is not random and is agreed upon exactly because it is the fair and accurate value, which of course, is what should be reported to you by your appraiser. The seller probably already knows the value and therefore it is no coincidence that the amount is the same as that in your appraisal.