If you’re buying or selling a home—or refinancing your mortgage—you’ll likely encounter one crucial step: the home appraisal.
You may have heard the term tossed around by your real estate agent or lender, but what does a home appraisal actually involve? Who conducts it, how is it different from a home inspection, and why is it such a big deal?
Let’s break down the home appraisal process, step by step, and explain why it’s one of the most important parts of any real estate transaction.
What Is a Home Appraisal?
A home appraisal is an unbiased, professional opinion of a home’s market value. It’s conducted by a licensed or certified appraiser, typically hired by the buyer’s mortgage lender (but paid for by the buyer), to ensure the home is worth the amount being borrowed.
The appraisal helps protect the lender by making sure they’re not lending more than the home is worth. It also helps the buyer avoid overpaying.
Why Is a Home Appraisal Necessary?
Here’s why the appraisal process is so important:
- For the lender: It verifies that the property is worth the loan amount. No bank wants to fund a $300,000 mortgage on a house worth $250,000.
- For the buyer: It offers peace of mind that you’re paying fair market value.
- For the seller: A good appraisal supports the asking price, boosting buyer confidence.
Appraisals are required for most financed transactions, especially conventional, FHA, and VA loans. If a buyer is paying cash, they can technically skip it—but most still choose to get one as a safeguard.
Appraisal vs. Inspection
- An appraisal determines the value of the home.
- A home inspection evaluates the condition of the home.
The appraiser is focused on numbers—what the home is worth based on size, location, amenities, and comparable sales. The inspector, on the other hand, looks at things like the roof, plumbing, electrical systems, and foundation to spot potential problems.
Both are valuable, and both serve very different purposes.
When Does the Appraisal Happen?
The appraisal usually happens after the offer is accepted but before closing, once the lender is processing the mortgage. It typically occurs during the same window as the inspection and financing approval.
Who Orders and Pays for It?
The lender orders the appraisal through a third-party Appraisal Management Company (AMC) to ensure independence and avoid any bias.
The buyer usually pays for the appraisal as part of the closing costs. The cost varies by location and property type, but typically ranges from $200 all the way up to $2,000 for larger homes.
What Does an Appraiser Look For?
Appraisers follow standardized guidelines to assess a home’s value. Here’s what they focus on:
The Property’s Basics
- Square footage
- Number of bedrooms and bathrooms
- Layout and functionality
- Age of the home
Condition of the Property
- Structural integrity
- Roof, HVAC, windows
- Overall upkeep and maintenance
- Any renovations or upgrades
Lot and Location
- Lot size
- Neighborhood quality
- Proximity to schools, shopping, highways
- Zoning and land use restrictions
Comparable Sales (Comps)
The biggest factor: what have similar homes in the area sold for recently?
Appraisers look at at least three comparable properties that:
- Are similar in size and features
- Are within a 1-mile radius (if possible)
- Have sold within the last 3 to 6 months
Adjustments are made for differences like a finished basement or a larger garage.
How Long Does the Appraisal Take?
- On-site visit: 30 minutes to 2 hours, depending on the home’s size and complexity.
- Report completion: Typically 2–7 business days after the visit.
The final report is submitted to the lender, and the buyer usually gets a copy soon after.
What’s in the Appraisal Report?
A standard appraisal report includes:
- Property details and photos
- Market data and comparable sales
- Neighborhood analysis
- Any issues that affect value
- The appraiser’s final opinion of market value
What Happens If the Appraisal Matches the Offer Price?
Great news! If the appraisal meets or exceeds the offer price, the sale can move forward as planned. Everyone can breathe a little easier.
What If the Appraisal Comes in Low?
Uh-oh. If the appraisal is below the offer price, you’ve got a problem. The lender won’t finance more than the appraised value. Here are your options:
Renegotiate the Price
The buyer and seller can agree to lower the price to match the appraisal.
Make Up the Difference
The buyer can pay the difference out of pocket. For example, if the appraisal is $10,000 short, the buyer pays that $10,000 in cash.
Request a Reconsideration
If there are errors or outdated comps, the buyer or lender can challenge the appraisal. This is rare but possible.
Walk Away
If the contract includes an appraisal contingency, the buyer can back out without penalty.
Low appraisals are frustrating but not uncommon in hot markets where bidding wars push prices beyond what recent comps support.
Tips to Help Your Appraisal Go Smoothly
For sellers:
- Clean and declutter before the appraiser arrives.
- Provide a list of recent improvements and upgrades (with receipts).
- Make sure all utilities are on and systems are accessible.
For buyers:
- Choose an experienced lender who works with reputable AMCs.
- Understand your options if the appraisal comes in low.
- Don’t skip reviewing the report—mistakes can happen.
Appraisals in Special Situations
FHA and VA Loans
These appraisals are more strict. The home must meet Minimum Property Requirements related to safety, security, and soundness.
For example, chipped paint, exposed wiring, or missing handrails could delay approval until repairs are made.
New Construction
Appraisers may use construction plans and proposed features to estimate value. They also consider recent sales of similar newly built homes.
Refinancing
If you’re refinancing, the appraisal process is the same, but since you already own the home, the stakes may feel lower—though the outcome still affects your loan terms.
The home appraisal is a critical checkpoint in the real estate journey. While it can be a source of stress—especially in competitive markets—it ultimately exists to protect all parties involved, especially the buyer and lender.
By understanding how the process works, what affects the outcome, and what to do if things don’t go as planned, you’ll be far more prepared to navigate your transaction with confidence.
Whether you’re buying, selling, or refinancing, keep the appraisal in perspective: it’s just one more step on the path to making smart, secure real estate decisions.
