What is a home appraisal and why do you need one?

A home appraisal is a licensed, independent professional's estimate of a property's market value. Mortgage lenders require a home appraisal before approving a loan to confirm the home is worth at least as much as the amount you're borrowing. For homebuyers, an appraisal helps protect against overpaying by providing an independent estimate of a home's value and may affect the maximum loan amount a lender is willing to approve. Expect to pay between $350 and $600 for a full appraisal, and the entire process typically takes several business days.

If you're buying a home, learn how appraisals work, what to expect from the process and how an appraisal can affect your mortgage approval.

What is a home appraisal?

A home appraisal is the determination of a property's value by a state-licensed or certified independent expert. A professional home appraiser follows a set of uniform procedures when assessing a property's value.

Home appraisals are an important part of mortgage approval because lenders will only allow homebuyers to borrow up to a certain percentage of a home's appraised value. For homebuyers, an appraisal helps confirm that the home's value supports the purchase price and the amount they're borrowing.

Types of home appraisals

Some appraisal reports may include greater detail or focus on a specific feature of the property, such as its ability to generate rental income. Knowing the underlying reason for an appraisal can help you determine the type of report required.

• Full appraisal: For this type of valuation, the appraiser uses recent comparable sales, property records and a home visit to prepare their report. The appraiser will assess the property's exterior and walk through the interior to note any pertinent features that could affect the home's value.
• Exterior-only appraisal: Also known as a drive-by appraisal, this approach follows the same standards as a full appraisal but relies on public records for information about the property. This type of valuation generally isn't used for first mortgages.
• Rental analysis: A rental analysis may accompany a full appraisal to determine the potential profitability of a property used for income generation. The final report will estimate the anticipated rent for a home based on comparable rental units in the area, as well as the property's age and condition.
• Broker price opinion (BPO): An opinion of a property's value from a real estate broker may support certain types of financing, such as a home refinance. A broker may also give their opinion of a property's value to assist a potential seller, but a BPO is not an appraisal.

What does a home appraiser evaluate?

Appraisals are conducted by independent, licensed professionals who understand real estate valuation within a specific market. Appraisers must understand how to incorporate differentiating characteristics between properties into the overall valuation.

The appraiser considers a range of items in their evaluation:

Relevant data

• The recent sales of comparable properties within the subject's market (known as "comps")
• Features that influence home values, local amenities and schools

Outside the home

• Lot size, utility and zoning classification
• Condition of the exterior, roof, gutters and downspouts
• Exterior amenities such as decks, pools and patios
• Driveway surface and car storage

Inside the home

• Condition of the floors and walls
• Total above-grade living area or square footage
• The number of bedrooms and bathrooms
• Remodeled areas, such as kitchens and baths
• Finished vs. unfinished basement
• Materials used for walls, floors and windows
• Evidence of pests or termites

What's in an appraisal report?

An appraisal report contains the estimated value of your home along with details about your property, such as the size of your lot, the number of rooms and the architectural style. The appraisal report is the appraiser's unbiased opinion of your property's market value.

Report preparation times vary with the property's size and complexity. The U.S. Federal Housing Authority (FHA) notes that the appraiser may devote a few hours to an on-site visit. However, the entire home appraisal process, including research and report preparation, can take several business days.

As a buyer, you'll receive a copy of the appraisal report and can review the appraiser's estimated value, comparable sales and notes about the property's condition. Once the lender reviews the report, they can finalize the loan amount. Keep in mind that if a real estate transaction is delayed, an appraisal could expire. Due to fluctuations in the real estate market, an appraisal may be valid for only 90 to 120 days, so you may need to have the home reappraised if you go beyond this window.

How buyers can prepare for an appraisal

Some essential items to take care of before the appraiser visits the property include:

• Understand the purchase price and local market.
• Review recent comparable sales with your real estate agent.
• Budget for the appraisal fee.
• Be prepared for possible delays if the appraisal comes in below the agreed-upon purchase price.
• Review the report carefully once it's complete.

How much does a home appraisal cost?

While the lender requires an appraisal, the buyer typically covers this cost, which is generally between $350 and $600 for a full home appraisal, according to HomeGuide. An exterior-only appraisal may cost less, while an appraisal for a government loan, such as an FHA mortgage, may cost more than average due to additional requirements.

Appraisal costs also vary based on the size of the home, its location and any conditions or features that require additional time and effort to value.

How long does a home appraisal take?

While the appraiser may spend up to a couple of hours at your home, they must also conduct research and prepare the report. Of course, the first step is getting on the appraiser's busy schedule.

Ask your lender when an appraisal is ordered in the loan process to make sure you have time to prepare. If you haven't received a call from the appraiser as expected, follow up with your lender or contact the appraiser to confirm the timing. After the appraiser visits, plan to check in with your lender within a week or so to ask if they've received the final report.

Home appraisal vs. home inspection

When you're entrenched in the homebuying or selling process, you'll likely hear about both an appraisal and an inspection. Appraisals and inspections are necessary components of a real estate transaction but have different purposes, tasks and types of reporting.

What buyers should know about appraiser selection

Due to federal regulations, homebuyers, sellers and realtors don't choose appraisers if the process is part of a mortgage transaction. Instead, lenders contact an independent third-party organization that will select an appraiser from a database of licensed professionals. This ensures that the appraiser is qualified, independent and unbiased.

Can you appeal an appraiser's report?

If you disagree with the appraiser's findings, first check the report. After all, appraisers are human and may make mistakes.

If you're buying a home and believe the appraisal contains errors or overlooks relevant comparable sales, you may be able to request a reconsideration of value through your lender. You can appeal the results by requesting a "reconsideration of value." Because appraised home values affect real estate transactions, it's important for the numbers to be accurate.

When an appraisal comes in lower than expected, the buyer may not qualify for the mortgage they need, or may be asked to increase their down payment. This happens because the lender reduces the loan amount based on the appraisal report.

Market price vs. appraised value

An appraised value can differ from a home's market price for several reasons. While the appraised value is considered an objective estimate of a home's value based on its internal and external characteristics, the market price reflects the amount a buyer has agreed to pay. As a result, a home's market price and appraised value may not always be the same.

An appraised value is used to ensure a home purchase price is justified by the condition and type of property changing hands. Alternatively, market value is driven by ever-changing factors like supply and demand, the area's amenities or even the school district.

Ready to begin your homebuying journey

If you're thinking about dipping a toe into the real estate market, it's important to understand the purpose of a home appraisal. For buyers, an appraisal is one of the most important checkpoints in the homebuying process. Understanding how appraisals work can help you navigate financing, evaluate a home's value and move toward closing with confidence.

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Frequently asked questions

Who pays for the home appraisal when buying a house?

While the lender requires the appraisal, the buyer generally covers this cost, which is typically between $350 and $600 for a full home appraisal. Appraisal costs can vary based on the size of the home, its location and any conditions or features that may require additional time to value.

What happens if the home appraisal comes in lower than the purchase price?

When an appraisal comes in lower than expected, the lender may reduce the loan amount. In that case, you might have to increase your down payment to cover the difference, renegotiate the purchase price with the seller or walk away from the deal if your contract includes an appraisal contingency. You can also request a "reconsideration of value" if you believe the report contains errors.

What is the difference between a home appraisal and a home inspection?

A home appraisal determines a property's market value and is used by lenders to set loan parameters. A home inspection identifies potential physical issues or defects in the property's structure and systems. The lender typically requires the appraisal, while the inspection is optional but strongly recommended for buyers.

Can a buyer choose their own home appraiser?

No. Due to federal regulations, homebuyers, sellers and realtors don't choose appraisers when the appraisal is part of a mortgage transaction. Instead, lenders contact an independent third-party organization that selects an appraiser from a database of licensed professionals to ensure the process is unbiased.