The Home Appraisal Process Explained
The appraisal is a critical, mandatory step when financing a home purchase. It is an independent process that protects both the buyer and the lender.
What Is the Appraisal?
The appraisal is an unbiased professional opinion of a property's market value. It is ordered by your lender to ensure the loan amount they are providing is justified by the home's actual worth.
Who Pays for It?
The buyer pays the appraisal fee (usually at the time the service is ordered, often $400 - $700), but the appraiser works for the lender.
Who Performs It?
A licensed, third-party appraiser with no direct interest in the sale's outcome.
The Three Main Steps
| Step | What the Appraiser Does | Why It Matters |
|---|---|---|
| 1. Inspection | The appraiser physically visits the property to measure the size (square footage), assess the overall condition, note the quality of materials (e.g., granite vs. laminate), and count the number of bedrooms and bathrooms. | They confirm the data used to calculate value, noting any obvious safety or structural issues (e.g., severe roof damage). |
| 2. Comparable Sales (Comps) | They find at least three recent sales (comps) of similar homes within the immediate area (usually sold within the last 6 months). They adjust the price of the comps up or down based on specific differences (e.g., adding value for a garage the comp didn't have). | This is the core of the valuation, using real-world market data to determine a justifiable price. |
| 3. Final Report | The appraiser summarizes their findings in a detailed report, which includes photos, a sketch of the property, a breakdown of the comps used, and the final Appraised Value. | This value directly impacts your ability to secure your mortgage. |
What Happens If the Appraisal Is Low?
The most common hurdle occurs when the Appraised Value is less than the Purchase Price (known as an "appraisal gap"). Since the lender will only loan money based on the appraised value, the buyer has a few options under the Financing Contingency:
1. Negotiate
The buyer and seller can agree to lower the purchase price to the appraised value.
2. Pay the Difference
The buyer can choose to pay the difference between the appraised value and the purchase price in cash at closing.
3. Challenge
The buyer's lender can formally challenge the appraisal (called a Reconsideration of Value) if errors in the report or overlooked comps are found.
4. Terminate
If the contract has an appraisal contingency, the buyer may be able to terminate the contract and get their earnest money deposit back.
Have Questions About the Appraisal Process?
Our team is here to guide you through the appraisal process and help you navigate any challenges that arise.