Home appraisal: Important things to know
Quick insights
- A home appraisal is an estimate of a home’s market value. A licensed professional conducts an appraisal when a home is bought, sold or refinanced.
- Lenders require home appraisals to assess the value of the property and make sure it’s appropriate for the amount you are asking to finance.
- The cost of a home appraisal varies but usually ranges between $250–$500, depending on the property’s location and complexity.
Whether you’re buying, refinancing or selling a house, a home appraisal is a crucial part of the financing journey. The appraisal is used to determine the estimated value of a home, which can significantly impact the outcome of your transaction.
The appraisal process may seem daunting at first, but we’re here to help. In this guide, we’ll cover what you may need to know about home appraisals, including how they work and what to expect during the process.
What is a home appraisal and why is it important?
A home appraisal is an estimate of a home’s market value, as determined by a licensed appraiser. The appraised amount isn’t the sale or asking price of a home—it’s the estimated value of what the home may be worth based on a variety of factors.
This estimated value is critical for buyers and sellers to ensure the sale price of the property reflects its true value, protecting both from overpaying or underselling, respectively.
For lenders, appraisals provide a safeguard by confirming that the property's value is sufficient to cover the loan amount, minimizing financial risk. If you can’t repay your loan, the home serves as collateral.
If the home appraises under the amount you plan to finance, this can create an issue for both you and the lender. The lender won’t be able to recoup the cost of your loan, and you might end up underwater on your mortgage. Appraisals help lenders make sure the financing amount is appropriate based on the value of the home.
Home appraisal vs. home inspection
A home appraisal is not the same thing as a home inspection. The two are distinct processes that serve different purposes. A home appraisal focuses on determining the fair market value of a property based on factors like location, size and comparable sales. A home inspection is a more detailed evaluation.
A home inspection involves a thorough examination of the home’s major systems to make sure everything is functioning. The inspection might include electrical, plumbing, HVAC and structural components. It isn’t like the appraisal, which is primarily for the lender’s benefit. Instead, a home inspection is usually done for the buyer’s peace of mind and to give them a better idea of the home’s condition before finalizing the purchase.
How does the home appraisal process work?
The home appraisal process makes sure the value of a property aligns with the agreed-upon purchase price or amount being financed.
Generally, a lender will order an appraisal through a third-party appraisal management company to ensure an unbiased evaluation. The licensed appraiser will visit the home to conduct an on-site inspection where they’ll evaluate the property’s size, layout, condition and features (like the number of bedrooms and any renovations).
An appraisal also includes research into “comps,” or comparable properties in the area, market trends, location and other variables. The appraiser will compile all this information in a detailed report.
Steps to getting a home appraisal
Here’s a step-by-step look into what happens during an appraisal:
1. Schedule the appraisal
Once an offer is accepted or a refinance is initiated, the lender will arrange for a home appraisal. The appraiser is an independent third party who will ensure an unbiased evaluation.
2. On-site inspection of the property
The appraiser will visit the property, conduct a thorough inspection and evaluate the home’s condition, size, layout and other key features. This will include both the interior and exterior of the house and will take up to a few hours, depending on the property size and condition.
3. Review of comparable properties
Appraisers will analyze recent sales of similar properties in the area, also known as “comps,” to get a better understanding of current market trends and determine a fair market value for the property.
4. Completing the appraisal report
After the inspection and analysis, the appraiser will compile their findings into an appraisal report, and will include the estimated home value and a detailed description of how it was determined.
5. Finalize the appraisal
Once the above steps are completed, the findings of the appraisal will be sent to both the lender and the buyer.
Types of home appraisals
Different situations may call for different types of appraisals. Understanding what they are can help you choose the right one for your needs.
Full appraisal
A full appraisal is a comprehensive evaluation, where the appraiser conducts an in-depth inspection of the property, both inside and out, and reviews market comps. This is the most common type and provides the most thorough analysis.
Drive-by appraisal
A drive-by appraisal is a less detailed evaluation, where the appraiser only inspects the exterior of the property and uses comp data to estimate the home’s value. This type is often used for refinancing.
Desktop appraisal
A desktop or “online appraisal” is completed using publicly available data, comp sales and market trends without a physical inspection. This is often used in situations where a rapid valuation is needed, like refinancing.
What happens after a home appraisal?
If the appraised value aligns with the sale price (or is higher), the transaction can move forward to the mortgage underwriting phase.
If the appraisal value is higher
When the appraisal value exceeds the agreed sale price, it creates an advantageous scenario for homebuyers. This means the property is worth more than the buyer plans to pay, providing instant equity.
For the lender, the higher valuation minimizes risk, as their loan-to-value (LTV) ratio decreases. The transaction can proceed smoothly without adjustments because there’s no financial shortfall to address.
Sellers might feel like they priced the home too low. But unless they renegotiate (rare at this stage), the agreed terms generally remain intact.
If the appraisal value is lower
A lower appraisal value can complicate the transaction significantly. For buyers, it can mean they need to renegotiate the price or pay the difference between the loan amount and the sale price out of pocket. Lenders typically won’t approve financing over the property’s appraised value.
For sellers, you may need to lower your asking price to keep the deal on track. An alternative is that both parties could agree to new terms, such as splitting the difference or including contingencies to address the gap.
Because appraisals sometimes come in lower than expected, many real estate purchase agreements now include an appraisal contingency. This is a common clause that protects the buyer in case the property’s appraised value comes in lower than the agreed-upon purchase price. It allows the buyer to negotiate, back out of the deal or take other actions without losing their earnest money deposit.
If the appraisal value is higher
When the appraisal matches the sale price, everything aligns perfectly, and the transaction progresses seamlessly. The buyer, seller, and lender all proceed as planned, and no additional negotiations or adjustments are needed.
How much does a home appraisal cost?
The house appraisal cost varies depending on location, size and complexity. On average, appraisal fees range from about $250–$500 but can be higher for more complex homes.
The fees are typically paid by the buyer in a purchase transaction or by the homeowner in a refinancing scenario.
What do they check on a house appraisal?
Appraisers will usually start with the overall condition of the home, looking for any visible damage or wear and tear that could impact the property's appeal. Then, they’ll examine the following factors:
- Location: The location is a critical factor, with the quality of the local school district, proximity to amenities and neighborhood desirability all influencing the property value.
- Size: Size matters, too—both the total square footage and the efficiency of the floor plan.
- Safety features and utilities: Safety features, like smoke detectors and secure railings, are taken into account, as are the condition and functionality of the plumbing and electrical systems.
- Updates and renovations: Recent home updates, such as modern kitchens, updated bathrooms and energy-efficient appliances, can also significantly increase the home's value.
- Construction quality and amenities: The quality of construction materials and the presence of desirable amenities—both indoors and outdoors—such as smart home technology, fireplaces or well-maintained landscaping, can play a role in the appraisal process as well.
How should I prepare for a home appraisal?
Whether you’re a buyer, seller or refinancer, here are some tips to help you navigate the home appraisal process:
Tips for buyers
If the home’s appraised value matches or is higher than the agreed purchase price, the transaction is usually straightforward. If the appraised value comes back below the agreed purchase price, then as a buyer, you may need to reconsider your options. Mortgage lenders typically won’t let you borrow more than what a home is estimated to be worth.
If you’re a buyer, consider doing the following to help streamline the process:
- Work with a real estate professional who understands your local market.
- Review recent comp sales to gauge expected market value.
- Avoid feeling pressured to offer above the asking price, especially if you think the appraisal will be lower than expected.
- Be prepared to negotiate or walk away if the appraisal is lower than the offer.
Tips for sellers
When you’re selling your home, having a good understanding of the property value helps you understand your home equity. This number is the difference between the appraised value of your property and any outstanding mortgage balance.
Knowing this value, if the appraisal comes in lower than expected, you might need to adjust your strategy. You could lower your asking price or ask that the buyer make up the difference.
If you’re a seller, you can:
- Ensure the home is clean and accessible.
- Highlight or improve exterior features.
- Provide a list of any recent upgrades.
- Set realistic expectations based on the local market (e.g., consider recent foreclosures or other market shifts that could impact your home’s overall market value).
Tips for refinancers
If you’re refinancing a home, your lender will likely require an appraisal. If the appraised value is below what is expected, it might limit your refinancing options. The lender may also deny your application altogether.
However, just like with any purchase, you can request a reconsideration of value if the appraisal comes in lower.
If you’re refinancing, doing the following can help make the process easier:
- Maintain the home’s appearance and address any minor repairs.
- Provide a record of regular maintenance history, such as HVAC servicing and roof inspections.
- Point out special or unique features.
- Consider refinancing options that don’t require an appraisal, like certain FHA or VA loans.
Don’t navigate home financing alone. Apply for a mortgage loan today and get support from our expert team.
Home appraisal FAQs
What are the qualifications of a home appraiser?
Generally, appraisers need to complete coursework, gain supervised experience and pass a state exam. They must also adhere to the Uniform Standards of Professional Appraisal Practice (USPAP) to ensure accurate and ethical appraisals.
Can a home appraisal be contested or challenged?
Yes. If you disagree with the appraised value of your property, you can request a reconsideration of value by providing additional information or recent comparable sales that may have been overlooked.
What should you not say to a home appraiser?
Avoid making statements that could be seen as trying to influence the appraiser’s judgment (e.g., how much you’re willing to pay or sell for). It’s best to provide factual information about the property and any recent upgrades.
In summary
In short, a home appraisal is a vital step in the home financing process, providing an unbiased estimate of a property’s market value. By having a good understanding of what factors appraisers look for, you can take proactive steps to ensure a smooth and successful transaction.
Whether you’re a buyer, seller or looking to refinance, being prepared can make a significant difference.
Don’t navigate home financing alone. Apply for a mortgage loan today and get support from our expert team.
