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Whether you’re looking to buy a house, sell or refinance, a home appraisal is likely going to be an important part of the process. After all, you’ll typically need to know how much a house is worth before you can make any meaningful financial moves on it.
You can go into the appraisal process feeling confident with the right knowledge. We’ll show you what appraisals are, how they work and how much you can expect one to cost.
A home appraisal is the process by which a licensed real estate professional determines the fair market value of a property.
Home appraisals are commonly required when obtaining a mortgage, whether you're purchasing or refinancing a home. This appraisal provides assurance to both you and your lender that the agreed-upon price for the property is reasonable.
When applying for a mortgage to buy a home, your real estate agent will likely recommend including an appraisal contingency in your purchase agreement. This contingency allows you to back out of the deal if the appraisal comes in lower than the agreed purchase price, protecting you from overpaying.
While appraisal contingencies are highly advised in many situations, they are not mandatory. You might choose to waive this contingency if you're paying cash or if the market strongly favors sellers.
However, including an appraisal contingency is especially beneficial for first-time buyers or those with tight budgets, as it safeguards you from paying more than the home's true value.
It’s important to distinguish between a home appraisal and a home inspection. A home inspection is a thorough evaluation that identifies potential issues or needed repairs in the property. Inspectors test various systems, such as electrical outlets, heating, and the roof’s condition.
In contrast, a home appraiser assesses the overall value of the property. While they note visible defects like a damaged roof or plumbing problems, they do not conduct in-depth investigations for specific issues. If safety concerns arise, the appraiser may recommend a specialized inspection.
Your lender will hire a licensed appraiser to provide an unbiased, third-party assessment of your home’s value. This ensures transparency for both you and your lender.
Appraisers evaluate several key factors, including the home’s condition, any improvements made, and comparable properties in the area (known as comps), to determine an accurate appraisal value.
Unlike a home inspector, the appraiser isn’t looking for specific faults or issues. Instead, they’ll be assessing the general condition of the property, including age and square footage. The appraiser will count the number of rooms, ensure the absence of any safety hazards and check the functionality of home systems. The quality of the property’s landscaping, foundation, roofing, plumbing and lighting, as well as the condition of the home appliances, will be inspected.
When you’ve made any upgrades or renovations to your home, the appraiser will take them into account—provided they are permanent fixtures. To add value, the improvement must remain with the property after you move. Temporary or removable upgrades won’t be considered in the appraisal.
The appraiser will also evaluate improvements beyond the main living spaces, such as a remodeled garage, a finished basement, or enhanced landscaping around a pool, as these can positively impact your home’s value.
The cost of a home appraisal typically ranges from $600 to $2,000. Appraisals for single-family homes generally cost less than those for multifamily properties.
Although most lenders require an appraisal to proceed with closing on a home, the buyer usually pays for the appraisal unless otherwise negotiated for the seller to cover the cost.
The factors that impact the cost of a home appraisal include: - The size of the home - The home’s location - The amount of property research the appraiser does before issuing the final value report - Whether the appraiser surveys property lines to verify the listed square acreage (common for large plots of land) - Whether the property is in a rural area, where appraisal fees tend to be higher due to fewer available appraisers If you have questions about your specific appraisal cost, it’s recommended to consult your mortgage lender. The amount a home buyer pays for an appraisal depends on various factors, including:
The duration of a home appraisal can vary depending on several factors, including the type of appraisal ordered by your lender and the regulations in your state. Typically, the entire home appraisal process—from scheduling to receiving the final report—can take anywhere from a few days up to several weeks.
For example, the physical inspection of a standard single-family home usually lasts between 30 minutes to 2 hours. After the inspection, the appraiser conducts research on comparable homes and market trends before compiling a detailed appraisal report. This research and report preparation can take an additional few days to a week. So, if you schedule an appraisal on a Monday, you might expect to receive the completed home appraisal report by the following Friday or within two weeks, depending on the appraiser’s workload and local market conditions.
Besides the traditional in-person home appraisal, lenders now offer several alternative types of appraisals, each with its own advantages and disadvantages. These options leverage technology and different inspection methods to suit various situations.
Choosing the right type of appraisal depends on factors such as lender requirements, property type, and the buyer’s or seller’s priorities regarding speed, cost, and accuracy.
When selling your home, several major factors can impact the home appraisal and potentially affect the final appraised value. Understanding these factors can help you prepare your property to achieve the best possible appraisal outcome.
By addressing these factors before listing your home, you can help ensure a more favorable home appraisal and a smoother selling process.
An appraised value that comes in lower than your purchase price can present challenges. When this happens, your lender will only approve a loan amount up to the appraised value, meaning you may need to cover the difference out of pocket or renegotiate the deal.
To help increase your home appraisal and avoid potential setbacks, consider these tips and solutions:
If the appraisal still comes in low, you have options: negotiate a lower purchase price with the seller, increase your down payment to cover the gap, or consider walking away if the deal no longer fits your budget.
By taking proactive steps before and during the appraisal process, you can help ensure a smoother home buying experience and a fair appraisal value.
Orion's brokers train their staff on common questions from borrowers. Yes, many areas in Orion's footprint are improving in price, but there are still occasional appraisal questions or discrepancies. If an appraisal comes in below the value required, the first possible action is to establish if there are any existing comparable properties, not used by the appraiser, to appeal the value in the report. But if the appeal is denied and the value stands, what are the options available to Orion and a broker?
On a purchase transaction, borrowers have four basic options. Let's use the following example for illustration: your client has a purchase price of $425,000 and your appraisal comes in at $400,000.
One of the primary guidelines for pricing is the loan to value (LTV). For lending purposes, the LTV is based on the lower of the purchase price or the appraised value. In the instance above, the loan to value will be based on $400,000 not $425,000. This means if the borrower was putting down 20% on $425,000, they wrote the offer to purchase the property with a loan of $340,000. When the appraisal came back with a value of $400,000 the LTV of 80% is now 85% if you keep the loan amount of $340,000.
The first option is your client agrees to pay $425,000. If they retain the loan amount of $340,000, the client will have the same down payment: $85,000. But they will now have a loan that requires mortgage insurance since it is greater than 80% LTV, adding to the monthly payment. How much depends on the type of mortgage insurance the client chooses. Or they can choose to increase the down payment by $20,000which will bring the loan amount down to $320,000 and 80% of the value of the appraisal.
The second option is that the Seller agrees to lower the price to the appraised value of $400,000, not likely as we head through April toward the summer season. The client puts 20% down on the $400,000 and the loan amount is adjusted to $320,000. The third option is where the client and the Seller meet somewhere between the appraised value of $400,000 and the original sales price of $425,000. This option may require your client to make some additional down payment to avoid mortgage insurance. And the last option is that the client walks away from the transaction. And no one wants that!
If you’re refinancing your current home or securing a mortgage loan to purchase a new one, your lender will almost always require a home appraisal as part of the home loan process. This appraisal provides a professional opinion of the home's fair market value, helping protect both you and your lender during the financing process. However, if you’re buying a property with cash, a home appraisal is not mandatory, though it can still be a smart move to ensure you’re paying a fair price.
Typically, the buyer is responsible for covering the home appraisal cost unless otherwise negotiated with the seller. The appraisal fee can vary depending on factors such as the property’s location, size, age, condition, and the extent of research the appraiser conducts. This detailed report is essential for mortgage lenders to confirm the estimated value of the subject property.
If the home appraisal comes in lower than the agreed-upon purchase price during a home purchase, your mortgage lender will only approve a loan amount based on the appraised value. In this case, you have several options: you can pay the difference out of pocket, negotiate with the seller to reduce the sale price, or walk away from the deal if the appraisal gap is too large. For refinancing, if you believe the appraisal undervalues your home due to overlooked improvements or errors, you can request a reconsideration or a second appraisal.
Home appraisals play a crucial role in real estate transactions by providing an unbiased assessment of a property’s current market value. For buyers, they ensure you are not overpaying for your new home. For sellers, appraisals help set a competitive and realistic sales price that reflects the true market conditions, ultimately facilitating smoother closings and fair financing for all parties involved.
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