An appraisal relies mostly on comparable sales, or "comps," as they are known in the biz. In other words, how does your home compare to other similar homes in terms of its location, size, amenities, and upgrades. Ideally, "comps" will be no more than a mile away from your home and have sold or listed within the past 6 months.

As for the surrounding neighborhood, schools, parks, shopping centers and proximity to employment typically have a positive effect on value. Where as proximity to busy thoroughfares (freeways), industry, noise and congestion will have a negative effect on value. By comparing your home against the others by way of pluses and minuses, the appraiser is able to come up with value.

Why is it needed?

Primarily to protect the interests of the lender. Since the lender will be lending you thousands of dollars on your home, it is only logical they would want to evaluate the risk properly. They need to determine what is the maximum loan amount they will lend against the value. In the industry jargon, that's called loan-to-value, or LTV.

However, the appraisal protects you, as well. If you were purchasing a home, you wouldn't want to pay $150,000 for a home that is worth only $120,000?

Who pays for the appraisal report, and how much does it cost?

The borrower pays for the appraisal in most cases. The fee ranges from $250 to $300 for a single-family-residence (SFR), more if you're buying or refinancing units. If you wish to get a copy of the report, simply make a request in writing, and a copy will be mailed to your home, usually 30 days after the close of escrow.