An Explainer: Property Appraisal

Prospective home buyers, who are planning to avail of a home loan to fund their purchase, must have come across the term property appraisal.

Before giving you a loan for the property you intend to buy, banks send an expert to evaluate the property to decide on the lending limit. Based on several factors, including whether similar properties in the same locality were sold for the same price, the bank will fix on a loan amount. It might extend for the said property. Property appraisals form a crucial part of the lending process, and are banks' way of knowing what the property would fetch in case the loan turns out to be a non-performing asset and the property has to be sold to recover the loss. This is the reason why no bank provides you a home loan without carrying out an appraisal.

On the other hand, an appraisal by the bank also helps you estimate the real worth of the property; in case the seller has quoted a price much higher than what the bank has evaluated, you can back out from the deal if it does not look feasible.

Also, property appraisal should not be confused with property inspection –the former is done to evaluate the property, the latter to check out the physical health of the property.