When You Need a Home Appraisal.... and Might Not Expect It

06/16/2015 02:32 pm ET | Updated Jun 15, 2016

Most Americans associate a property appraisal with buying or selling a home. Yet there are a number of other instances outside a typical real estate transaction when consumers may wish to or are required to order a home appraisal, but may not realize it. In these instances, an appraisal can provide critical information that enables consumers to make informed financial decisions. We at The Appraisal Foundation have compiled the most common examples when a home appraisal may be desirable or required outside of buying or selling a home.

Perhaps the most common instance is when a property owner chooses to take equity out of his or her home. Commonly referred to as taking a second mortgage, this process allows a homeowner to use their property as collateral to receive a home equity loan or line of credit. Pulling equity out of a home can be done for a number of reasons, including financing property renovations, debt consolidation, or to help pay for a child's college education. Whatever the reason, a home appraisal is generally required to determine the market value of a home, which sets the terms of a loan. Homeowners also often choose to refinance their mortgage to take advantage of lower interest rates. To do so, they must receive an appraisal to obtain an updated value of the property and set the terms of the new mortgage.

Home appraisals can also be helpful during estate planning. Understanding the value of one's property enables homeowners to create a will or estate with full comprehension of the monetary value they are passing on to their heirs. If an estate must be sold or auctioned off due to a death or other reason, an appraisal is necessary to provide an up-to-date valuation of the property, ensuring that it's divided up appropriately among all entitled heirs.

Real property appraisers can also play a critical role during various legal matters and proceedings. In the case of divorce, couples may need to divide their assets, including their home, based on percentages agreed to or determined by a judge. An appraisal provides a credible valuation of the home, making it easier for a judge to split ownership of the property in a manner that is consistent with the larger settlement. If a homeowner goes bankrupt, he or she may be required to sell or transfer ownership rights of a property to pay off creditors. An appraisal is required to determine an accurate valuation of the property so that it can be deducted from what he or she owes creditors.

Homeowners may also wish to consider obtaining an appraisal if they are appealing the assessed value of their home for property tax purposes. If a homeowner believes that his or her property is assessed higher than the market value and, as a result, he or she is paying more in property taxes than necessary, the homeowner can potentially engage an appraiser to provide a current opinion of market value. Another instance of when an appraisal can be helpful to homeowners is if they if they chose to lease their home, helping them to determine a fair monthly rental fee. And one more example is when a borrower is seeking to have Private Mortgage Insurance (PMI) removed from their loan; an appraisal is generally required by the lender to document the equity required to drop the PMI.

In all of the above examples, there are preliminary steps one can take to get a sense of the value of a property. For instance, consumers can engage a real estate broker who has experience in a particular marketplace to provide an estimated value for a property. Alternatively, they can use popular Automated Valuations Models (AVMs), such as Zillow, which provide a computer-generated estimation of a property's value. While these may be helpful first steps in estimating the value of a property, they are no substitute for an appraisal completed by a qualified licensed or certified appraiser. An appraisal provides the most credible opinion of value so that consumers can make the most informed decisions possible.

Although most people are aware of the role of an appraiser when buying or selling a home, there are countless other examples of when consumers would benefit from or are required to get an appraisal. In the cases listed above, an appraisal will equip consumers with the knowledge they need to weigh their options and move forward with a course of action that best fits their needs.