By obtaining an appraisal, lenders can make informed lending decisions based on accurate property valuations, assess risk, comply with regulations, protect their collateral, and meet investor requirements. The appraisal helps ensure that the mortgage loan is appropriately structured and aligned with the property's value, promoting a secure and efficient lending process.

Appraisals provide an independent and unbiased assessment of the property's value. Lenders need to determine the current market value of the property being used as collateral for the mortgage loan. This valuation helps ensure that the loan amount is appropriate and in line with the property's worth.

Risk Assessment: Lenders need to assess the risk associated with the mortgage loan. Appraisals help them evaluate the property's condition, location, and marketability. By understanding the property's value, lenders can better gauge the level of risk involved in lending against it.

The loan-to-value ratio is the proportion of the loan amount to the appraised value of the property. Lenders use this ratio to determine the risk level and to establish guidelines for loan approvals. Appraisals help lenders calculate the LTV ratio accurately, ensuring that the loan amount is within acceptable limits.

Collateral Protection: The property serves as collateral for the mortgage loan. Lenders require an appraisal to ensure that the property's value is sufficient to cover the loan amount in the event of default or foreclosure. This protects the lender's interests and helps mitigate potential losses.

Furthermore, private residential appraisals can be beneficial for insurance purposes. They establish the replacement cost or insurable value of a property, helping homeowners ensure they have adequate insurance coverage.

Appraisals are often required by regulations and lending guidelines. For example, in the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act mandates the use of licensed or certified appraisers for mortgage transactions. Lenders must comply with these regulations to ensure the validity and accuracy of the appraisal.

Investor Requirements: Many lenders sell mortgage loans on the secondary market to investors. These investors often have their own guidelines and requirements, including the use of appraisals to assess the collateral. Lenders need to obtain appraisals to meet these investor requirements and facilitate the sale of the loans.