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A home appraisal is a crucial step in buying a house. An appraisal report is created by an unbiased, independent third party to assess the property’s financial value.
Here’s what you need to know about how home appraisals work and how much you can expect to pay for one. This way, you can factor the appraisal into your home-buying budget and timeline.
Dig deeper: How to buy a house in 13 steps
In this article:
What is a home appraisal?
A home appraisal is an estimate of a house’s market value, conducted by an independent appraiser who is licensed or certified to assess property values. The appraised value will not necessarily be the same as the property's listed price. Instead, the appraised value is the estimated worth of the home based on a number of factors, such as the home’s condition and location. This may differ from the seller’s asking price.
Mortgage lenders require an appraisal to assess the current value of the property. The appraisal protects the seller, borrower, and lender by assuring all parties that the price paid for the home reflects its actual worth.
An appraisal is not the same as an inspection. With a home inspection, the buyer hires an inspector to evaluate the property’s condition, whereas the mortgage lender schedules the appraisal to assess the value. The inspection spells out any problems with the property, and the buyer decides whether they still want to buy the house after looking at the inspection. Inspections generally cost between $300 and $500, and buyers often have to pay for both the inspection and appraisal.
Appraisers are licensed and certified professionals who are legally required to be independent and impartial to ensure the process is conducted fairly.
Read more: How a home inspection works
Appraised value vs. market value
A licensed appraiser will give you and your lender an appraised value for your home. Both your approved loan amount and your property taxes are based on the appraised value.
But this is different than your home’s market value — what the house will fetch when listed on the open market. That number depends on conditions in your local housing market, buyer interest, marketability, the features and condition of your home, and other factors.
Sometimes, the appraised and market values are the same. Other times, these two numbers don’t match up, which can create problems when buying a home. This is called an “appraisal gap,” which we will discuss more later.
Dig deeper: What is the difference between a home’s appraised value and market value?
What factors are considered in a home appraisal?
Generally, an appraiser will conduct an in-person assessment of the home before stacking it up against sales of nearby comparable properties, also known as “comps.” If the home has better amenities or more rooms than the comps, it will probably have a higher appraised value.
Appraisers may consider the following factors when comparing a home to its comps:
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Square footage and number of rooms
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Age and condition of the home
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Construction quality of the home
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Upgrades and special features, such as a fresh coat of paint or a new front door
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Land area
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Location
Learn more: Real estate comps — How they work and why they matter
When is an appraisal required?
If you are looking to buy a home, refinance your current mortgage, or take out a home equity loan or line of credit, your mortgage lender will usually require an appraisal to approve the loan.
Even if an appraisal is not required, there are other reasons homeowners might choose to get a voluntary appraisal. These may include:
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Selling your home: An appraisal could help you determine your asking price.
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Tax assessment disputes: If you disagree with the local tax authority’s valuation of your property, an appraisal could provide proof of the accurate value.
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Estate planning or divorce: If the home's value must be split among multiple individuals, either because it is an inherited property or because the owners have dissolved their union, an appraisal can help with a fair division.
Learn more: How to handle your mortgage when getting a divorce
Can you waive an appraisal?
Though mortgage lenders typically require an appraisal to approve an original mortgage, refinanced mortgage, home equity loan, or HELOC, it is possible to get an appraisal waiver if you meet certain requirements.
Generally, the value of the property will be determined using an automated underwriting system. This system can also determine whether a home is eligible for a waiver. Waivers are limited to primary residences or second homes.
Appraisal waivers are only available from certain lenders and can only be used for single-unit residences, including condos. In addition, the loan must meet loan-to-value ratio requirements to qualify for a waiver. The maximum LTV allowed varies by the type of home loan you’re getting but is typically 80% (meaning you have 20% equity in the house) for purchasing a primary residence or second home. The LTV requirements differ for refinanced mortgages and depend on what kind of refinancing you’re applying for.
Though an appraisal waiver can save you money on the cost of the appraisal, it does leave you vulnerable to overpaying for a home.
Dig deeper: How LTV ratio affects your mortgage
How much does a home appraisal cost?
The lender is the one that ultimately chooses and schedules the appraisal, but the buyer is responsible for paying for it — usually as part of their closing costs.
Since an appraiser must be an impartial third party, buyers cannot shop around to find a different appraisal company to handle this task. Other than requesting an appraisal waiver, the only way a buyer can mitigate the cost of an appraisal is by asking the seller to cover the cost of the appraisal as part of the sales negotiation.
The specific cost of a home appraisal can vary. Home services platform Angi shows that the average is about $357 nationwide.
Read more: Closing costs — A guide to how they work and how much you’ll pay
How long does a home appraisal take?
If your lender requires an in-person appraisal, the actual walk-through process can take up to several hours, depending on the size and amenities of the home.
The time it takes for the appraiser to complete the appraisal report will vary from one home to another. However, the NAR found that it typically takes 11 calendar days from the date the contract is accepted to receive the written appraisal.
No matter how long the appraisal process takes, the lender must provide the borrower with a copy of the appraisal report as soon as possible and no later than three days before the closing date. This gives the borrower time to review the appraisal prior to closing and request a re-analysis in case of inaccuracies.
Read more: How long does it take to buy a house?
Common types of home appraisals
Full appraisal
A full appraisal is the traditional type of appraisal. It involves an on-site physical assessment of the property, in which the appraiser will evaluate its condition, features, amenities, and more. This will usually take a few hours, and it’s longer and more expensive than approaches that are solely data-driven.
Drive-by appraisal
With a drive-by appraisal, an appraiser will still physically go to the home, but they’ll focus on the exterior only — items they can “drive by” and see. They also may drive through the neighborhood to gather data on comparable homes and the overall market.
Learn more: How does a drive-by appraisal work?
Desktop appraisal
A desktop appraisal is an appraisal that does not involve an actual physical inspection of the property. Instead, the appraiser uses data such as public records and the Multiple Listing Service (MLS) to assign a value to the home. These appraisals are usually faster and less expensive than full appraisals. On one hand, they can be less accurate — on the other, they can eliminate issues such as appraisal bias.
Hybrid appraisal
Hybrid appraisals involve a physical appraisal of the property, but not one conducted by the actual appraiser. Instead, that’s done by a contractor or other third party. They give the evaluation to the official appraiser, who will then use it — plus other data — to create the appraisal report. This is usually done to save on time and costs.
Appraisal gaps
If a home’s appraised value comes in lower than what you’ve offered to pay for it, this is called an appraisal gap, and it can pose a big problem for your home purchase.
Say you’ve offered $500,000 for a home you love, but when the appraisal is done, you learn its appraised value is only $450,000 — leaving you with a $50,000 “gap.” Since mortgage lenders will only loan you up to a home’s appraised value, you’d be left to make up that $50,000 gap out of pocket.
If you can’t pay that extra cash, there are other strategies you can explore below.
Dig deeper: What is an appraisal gap, and what can buyers do when it happens?
What if my appraisal comes back too low?
If the appraisal value is lower than the asking price, you may challenge the appraisal. You can request a reconsideration of value (ROV) from your lender that will give you an opportunity to correct any errors you see in the original appraisal and provide additional information that may affect the valuation.
Though the ROV might correct any errors or omissions in the original appraisal, the valuation may stand at the lower amount found by the appraiser. If that is the case, the lender could require you to put more money down on the home to secure the mortgage.
You might also request to order a second appraisal, renegotiate the sale price with the seller, or, depending on your contract, back out of the deal entirely. In this case, you’d need to have an appraisal contingency clause in place to get your earnest money deposit back.
Dig deeper: What to do if an appraisal comes back lower than your offer
What is a home appraisal contingency?
An appraisal contingency is a type of clause you put in your sales contract when making an offer on a home. Think of it like an “out” clause — a back door out of the transaction if your home doesn’t appraise for as high a value as you expect.
With an appraisal contingency in place, you’re free to exit the deal unscathed if there’s an appraisal gap. You’ll even get your earnest money deposit back in the process.
Read more: What is an appraisal contingency, and should you include it in your offer?
What to do if you experience appraisal bias
The home appraisal process isn't foolproof, and with real-life humans involved, bias can slip in on occasion. For example, an appraiser might let a neighborhood's, buyer's, or seller's demographics or characteristics influence what value they assign to the property. If this happens, it's considered appraisal bias.
This happens most often in areas with significant Black and brown populations. In fact, a 2023 study by the Federal Housing Finance Agency found that over 16% of predominantly Latino and Hispanic homes were undervalued over a 10-year period. Nearly 14% in majority Black areas were too.
If you feel you’ve experienced bias in the appraisal process, file a complaint with the Consumer Financial Protection Bureau, the Office of Fair Housing and Equal Opportunity, or your state’s appraiser regulatory agency. You can also request a reconsideration of value (ROV) through your lender.
Dig deeper: Home appraisal bias — How to know if you’re experiencing discrimination
Home appraisal FAQs
What happens during a house appraisal?
During an appraisal, a home appraiser looks at factors that affect the property's value. They look at the construction, any recent upgrades or repairs, and other factors like the location and size of the property. Then, they put together an official appraisal report detailing the home's value.
What negatively affects a home appraisal?
An appraisal could be negatively impacted if important appliances, such as the HVAC system, are outdated. A poor foundation or a roof that needs to be replaced will also hurt the appraised value.
What exactly does an appraiser look for?
An appraiser looks at broad factors such as the size of the house, number of rooms, land area, and location. They also evaluate smaller details you might miss, such as the quality of construction.
Do appraisers look under sinks?
Yes, most appraisers look under sinks for water damage, mold, leaks, and any other potential problems.
How much does it cost to get appraised?
A home appraisal averages about $357 nationally. The exact cost will depend on where the house is located, its size, its condition, and other factors.
This article was edited by Laura Grace Tarpley.
