What is the primary purpose of a property appraisal?

The primary purpose of a property appraisal is to assess the adequacy of collateral for a mortgage transaction. This involves determining the fair market value of the property, which is essential for lenders when deciding how much money to lend to a borrower. A professional appraiser evaluates various factors, including the property's condition, location, and comparable sales, to provide an accurate estimate of its value. This information helps ensure that the lender is making a sound investment and that the borrower is not over-leveraged based on the property's worth.

While setting a market price for a property, determining gross rent multipliers, and estimating actual income production can all be relevant in certain contexts, they do not capture the specific function of an appraisal in a mortgage context. The appraisal’s role is crucial in mitigating risk for lenders by confirming that the value of the property is commensurate with the loan amount being requested.