When Are Appraisals Done and for What Purposes?

Understanding Appraisals and Their Diverse Applications

An appraisal provides an unbiased professional opinion of an asset’s value. This assessment is fundamental across various situations, ensuring fairness, accuracy, and compliance. Qualified professionals perform appraisals, evaluating different types of property from real estate to businesses and unique collectibles. Their purpose is to establish an objective valuation of an asset’s worth.

For Real Estate Transactions

Appraisals are conducted during real estate transactions to protect all parties. Lenders almost always require an appraisal when purchasing or selling a home to ensure the property’s value supports the loan amount and the agreed-upon price is reasonable. For sellers, an appraisal helps set a competitive listing price, while for buyers, it assures fair market value.

Mortgage refinancing also requires an appraisal to determine a property’s current value. This assessment helps lenders ensure the new loan aligns with the property’s updated market worth. Appraisals are also used for home equity loans and Home Equity Lines of Credit (HELOCs) to establish available equity. An accurate appraisal helps lenders manage risk since the home serves as collateral.

In Legal and Estate Contexts

Appraisals play a role in legal and estate matters, providing objective valuations for equitable decisions. In divorce settlements, appraisals determine the fair market value of marital assets, including real estate, businesses, or valuable personal property. This helps ensure equitable property distribution.

For estate planning and probate, appraisals establish asset value at the time of death. This valuation is essential for calculating inheritance taxes, facilitating fair asset distribution to heirs, and selling estate property. Homeowners may also obtain an independent appraisal to challenge a local government’s property tax assessment. Appraisals can serve as evidence in legal disputes where property value is contested, such as property damage claims or eminent domain cases.

For Financial and Investment Purposes

Appraisals aid financial and investment decisions. Business valuations are conducted when a company is bought or sold, during mergers and acquisitions, or for internal strategic planning. These valuations determine a company’s economic worth, providing a basis for transactions or investment decisions.

For charitable donations, appraisals are often required for non-cash contributions of significant value, such as real estate, art, or collectibles. The Internal Revenue Service (IRS) requires a “qualified appraisal” for donations valued at $5,000 or more to substantiate the claimed tax deduction. Appraisals may also be necessary for insurance claims to assess damaged property value. They determine appropriate coverage amounts for high-value items like jewelry, fine art, and extensive collections, ensuring adequate protection.