What is a Home Appraisal
A home appraisal is a licensed professional's independent estimate of a property's market value, typically required by lenders before approving a mortgage to ensure the loan amount doesn't exceed what the home is worth.
A home appraisal is a formal, unbiased assessment of a property's fair market value conducted by a licensed or certified real estate appraiser. It is one of the most important steps in a real estate transaction — lenders require them before issuing a mortgage to confirm the property is worth at least as much as the loan being requested.
An appraisal protects both parties: the lender avoids extending credit beyond the collateral's value, and the buyer gains an independent check against overpaying.
How a Home Appraisal Works
An appraiser performs a physical inspection of the property, noting:
- Square footage, number of bedrooms and bathrooms
- Condition of the structure, roof, foundation, and major systems
- Lot size and location
- Upgrades, renovations, and notable features or deficiencies
The appraiser then compares the home to recent sales of similar properties (called comparables or "comps") in the same area. Using this data and their professional judgment, they produce a written appraisal report that includes the final estimated value.
What Happens If the Appraisal Comes in Low
A low appraisal — when the appraised value is less than the agreed purchase price — creates a significant problem for the transaction. The lender will only issue a loan based on the appraised value, not the purchase price. That leaves a gap the buyer must cover with additional cash unless one of the following happens:
- The seller agrees to reduce the price to the appraised value
- Buyer and seller negotiate a partial price reduction
- The buyer contests the appraisal with supporting data (a process called a reconsideration of value)
- The deal falls through via the appraisal contingency
Appraisal vs. Home Inspection
These two are often confused but serve completely different purposes:
| Appraisal | Home Inspection | |
|---|---|---|
| Purpose | Estimate market value | Identify defects and issues |
| Ordered by | Lender (paid by buyer) | Buyer |
| Result | Dollar value | Condition report |
| Required? | Yes, for most mortgages | Strongly recommended, not required |
A home inspection assesses the physical condition of the house — the roof, HVAC, plumbing, electrical, and so on. An appraisal focuses on value. Both should be completed before closing.
Appraisal Costs and Timeline
Appraisals typically cost between $300 and $700 for a standard single-family home, though complex or large properties can run higher. The buyer usually pays the appraisal fee at or before closing. The process — from scheduling to receiving the final report — generally takes one to two weeks.
Appraisal for Refinancing
When you refinance, your lender will typically order a new appraisal. If your home has appreciated significantly since you purchased it, a high appraisal can help you access better refinance terms, eliminate PMI, or qualify for a cash-out refinance. If it hasn't appreciated — or if values have declined — the refinance may not be as beneficial or may require paying down principal first.
For deeper reading on the appraisal process, the Consumer Financial Protection Bureau has a useful guide for homebuyers.