Why does my home have to be appraised before my mortgage can be funded?

Typically, mortgage lenders will insist that an independent home appraisal be done before closing. This gives lenders confidence that the value of the home is sufficient to recover the balance of the mortgage loan if the borrower defaults and the bank has to foreclose on the home. 

 

Generally, lenders have internal policies on the maximum mortgage loan amount relative to the value of the home (known as the "loan to value ratio").  In order to satisfy their internal policies, they will want to have a third-party value the home.  This third party will look at comparable sales in the neighborhood, as well as the condition of your home, to determine an independent value of the home.

 

We’ll be honest: the appraisal generally comes in around the purchase price. In open market transactions, we’ve never seen a lender’s appraisal come in materially lower than the price a buyer has offered to pay for a home in the Bay Area. One potential explanation for this is that the Bay Area is such a competitive market, with most properties receiving multiple offers and bids, that by definition the amount that a bona fide buyer is willing to pay for a home is the fair market value.

 

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