What Is a Home Appraisal?
In plain English
A home appraisal is a professional, unbiased estimate of a property's fair market value performed by a licensed or certified appraiser. Mortgage lenders require an appraisal before funding a loan to confirm the collateral — the home — is worth at least the loan amount. Appraisers analyze the property's condition, size, location, and recent comparable sales.
How Does the Appraisal Process Work?
After a purchase contract is signed, the lender orders an appraisal through an appraisal management company. The appraiser visits the property, takes measurements, notes condition, and photographs it. They then analyze recent sales of comparable homes nearby to arrive at a value opinion. The full report is typically delivered within one to two weeks.
What Happens If the Appraisal Comes In Low?
A low appraisal means the lender will only finance based on the appraised value, not the purchase price. Buyers can negotiate the price down to the appraised value, pay the difference in cash, challenge the appraisal with additional comparable sales, or walk away if the contract includes an appraisal contingency. Low appraisals are a common source of deal complications.
What Factors Affect an Appraisal Value?
Appraisers consider square footage, bedroom and bathroom count, lot size, age, condition, location, and recent comparable sales within roughly a half-mile radius. Updates like new kitchens, bathrooms, and energy-efficient improvements can boost value. Deferred maintenance, poor condition, or proximity to undesirable features can lower the appraised value.
Frequently asked questions
Who pays for the home appraisal?
The buyer typically pays for the appraisal upfront, either at application or at closing. Costs range from $300 to $700 depending on the property size, location, and complexity of the assignment.
Is a home appraisal the same as a home inspection?
No. An appraisal determines market value for the lender. A home inspection evaluates the property's physical condition for the buyer. Both are common in a purchase transaction, but they serve different purposes and are ordered separately.
Keep exploring
Related terms
Mortgage
A mortgage is a loan used to purchase real estate, where the property itself serves as collateral. It's typically repaid over 15 or 30 years through monthly payments of principal and interest.
Home Equity
Home equity is the portion of your home's value that you actually own, free of any mortgage debt. It grows as you pay down your loan and as your home appreciates in value.
Home Inspection
A home inspection is a professional evaluation of a property's physical condition before purchase. It identifies defects and potential issues that can inform negotiations or help buyers avoid costly surprises.
Closing Costs
Closing costs are the fees and expenses paid at the end of a real estate transaction, on top of the down payment. They typically range from 2% to 5% of the loan amount.
Comparative Market Analysis (CMA)
A comparative market analysis is an estimate of a home's market value based on recent sales of similar nearby properties. Real estate agents use CMAs to help sellers set list prices and buyers make competitive offers.