Understanding Home Appraisals

A home appraisal is an independent assessment of the value of the property by a trained professional. The assessment is based on the condition and characteristics of the home itself, as well as external factors like location and market trends.

How appraisals work

When buying a home, an appraisal is usually required by your lender to determine the amount of money they will lend you for the purchase. Your mortgage lender will arrange for the appraisal with a licensed appraiser, but you are usually responsible for the cost. Once completed, the lender will provide you with a copy of the appraisal for your records.

What affects a home value?

Appraisers are trained to objectively evaluate several factors to determine a home’s market value, such as:

Size and design of home, including square footage, and number of bedrooms and bathrooms

Overall condition, including structural quality, property maintenance, and landscaping

Other property characteristics, like location and views

Extra features, like an in-ground swimming pool

Recent sales of similar properties in the market area

Market trends in the housing market and economy

Value acceptance

In some cases, the appraisal requirement could be waived - known as value acceptance – potentially saving you time and money during the closing process. Ask your lender if the property is eligible for a value acceptance product and, if so, discuss the pros and cons with your real estate agent or another professional.

Although the physical inspection part of a home appraisal may only require a couple of hours, the overall timeline is influenced by the appraiser’s availability, the property complexity, and the report preparation. If your appraisal is delayed, work with your lender to resolve any issues. Your real estate agent can also offer guidance.

After the appraisal

Your appraisal report will include the current appraised market value of the home that the lender  will use to underwrite your loan.

A value that is equal to or higher than the purchase price

If the appraised value matches or exceeds the purchase price of the home, this is good news. That should allow the closing process to move forward without affecting your financing or the amount of cash needed up front.

A value that is less than the purchase price

If the appraised value is less than the purchase price of the home, your lender may not approve your loan — or may not lend you the full requested loan amount. In this case, you should discuss your options with both the lender and your real estate agent.

If your loan is not approved at the full requested loan amount because of a lower appraisal value, you’ll need to decide how you want to proceed:

Negotiate a lower purchase price with the seller.

Submit an appeal for a reconsideration of value (ROV) if you believe the appraisal is unsupported, inaccurate or deficient by providing the required information.

Increase your down payment to reduce the mortgage loan amount.
Walk away from the sale. Depending on the terms of your sales contract, you may lose your earnest money deposit.

Your sales contract and unique circumstances will dictate what options are available to you.

Remember: Any communication about your appraisal should go through the lender because the appraiser can only discuss results with the client who hired them — in this case, that’s the lender.

What is appraisal bias?

Discrimination in home appraisals is against the law. Accurate and unbiased appraisals help ensure value opinions are independent, consistent, and objective.

If you feel racial bias or discrimination affected your home appraisal, talk to your lender about your concerns. If necessary, you can visit the Appraisal Complaint National Hotline website to take further action.