One of the most common questions we receive from new clients is about the difference between a purchase appraisal and an insurance appraisal. While many people assume that the differences between the two are quite complex and technical, it really is much simpler than you might assume.
Also known as mortgage appraisals or bank appraisals, a purchase appraisal is when the property value of your home is determined. These home appraisals are done by an expert appraiser who examines the condition of your home by gathering as much information as possible about it. This includes info about the depreciation, any relevant property records for sales comparisons and the land value. The timeframe and process on these appraisals can be found here.
As the name implies, a purchase appraisal is conducted when a home is made for sale and is meant to be purchased by someone.
Purchase or bank appraisals are important because they are very useful when it comes to acquiring a bank loan. For example, if you require a loan that is for $300,000 then the purchase appraisal of the house in question must be at least the same amount as the loan you seek.
Insurance appraisals are somewhat different as they focus on characteristics that are more about replacement than purchasing. In other words, an insurance appraisal is done to determine what the cost of the home would be if it had to be rebuilt after severe damages or complete destruction.
This is different from a bank appraisal because the cost of purchasing an intact home is always going to be different from the cost of complete repair and replacement.
The outcome of an insurance appraisal will include factors like the cost of dealing with debris, the actual demolition and the cost of any materials needed to rebuild the structure. Learn more about how much insurance appraisals cost here.
One of the biggest misconceptions about bank or home appraisals vs insurance appraisals is that they both are concerned with the market value of the house itself. This is not true – only home appraisals take into consideration the actual market value. Insurance appraisals are solely concerned with the cost of replacement.
Insurance appraisals are useful because they allow you to receive an accurate valuation of your property in the event of a rebuild. This helps keep you from being over-insured and lets you pay the right price when seeking out house insurance.
It is important to note that insurance appraisals do not factor in depreciation or the land value. This is part of why bank appraisals and insurance appraisals are often so different from each another.
Appalachian Appraisal Services is more than happy to help you with any questions or requests you may have about home appraisals or insurance appraisals. Feel free to come in or call and we’ll help you in whatever ways you might need assistance with your home appraisal. We service the West Virginia and Maryland areas.