If you are buying a home with a mortgage, your lender will almost always require an appraisal. It is easy to confuse with an inspection, but the two serve different purposes. An inspection looks at condition. An appraisal is about value.
What an appraisal is
An appraisal is a professional opinion of a property’s market value, prepared by a licensed or certified appraiser. The lender orders it, and the appraiser is expected to be independent of the buyer, seller and agents. Federal and state rules govern appraiser independence so that the opinion of value is not influenced by people with a stake in the sale.
Why lenders require one
The home serves as collateral for your mortgage. Before lending, a lender wants confidence that the property is worth at least enough to support the loan. If a borrower could not repay, the lender would rely on the home’s value. The appraisal helps the lender manage that risk.
How appraisers arrive at a value
For most homes, appraisers rely heavily on the sales comparison approach. They:
- Inspect the property, noting size, layout, condition, features and improvements.
- Research recent sales of similar homes nearby, often called comparables.
- Adjust for differences between the subject home and each comparable, such as an extra bathroom or a larger lot.
- Reconcile the information into an opinion of value.
Appraisers may also consider other approaches, such as the cost to rebuild, depending on the property type. Some loan programs also require the appraiser to note certain condition or safety issues.
If the appraisal comes in low
Sometimes an appraisal comes in below the agreed purchase price. That can happen when a market is moving quickly or when there are few good comparables. When it does, buyers typically have a few paths, depending on the contract:
- Ask the seller to lower the price.
- Cover the gap between the appraised value and the price with additional cash.
- Negotiate a combination of the two.
- Request a reconsideration of value through the lender if there is factual information the appraiser may have missed.
- Cancel the contract, if an appraisal contingency allows it.
Your options depend on your contract terms and deadlines, so review them with your agent right away.
It also helps to keep perspective. An appraisal is one professional’s opinion based on available sales data at a moment in time. A value that comes in at or above the price is reassuring, and one that comes in lower is a signal to pause and look at the numbers carefully before deciding how to proceed.
An appraisal is not an inspection
An appraiser looks at the home to assess value, not to find every defect. A clean appraisal does not mean the roof, plumbing or electrical systems are in good shape. That is the inspector’s job, and both steps are worth doing.
If you have questions about how an appraisal affects your loan, ask your lender. For help with your search or an offer, contact us through our contact page.
Going Deeper: How the Appraisal Fits Into Your Timeline
Understanding when the appraisal happens helps you plan around it. While every transaction is different, the general order looks something like this.
- Contract signed. Once your offer is accepted, you notify your lender and complete your full loan application if you have not already.
- Appraisal ordered. The lender orders the appraisal, usually through a management company or a panel of approved appraisers. Buyers typically pay for it, either up front or at closing, depending on the lender.
- Site visit. The appraiser visits the property. For an occupied home, the seller will need to provide access. The visit itself is often shorter than an inspection.
- Report delivered. The appraiser researches comparable sales and writes the report. The lender reviews it, and you are generally entitled to receive a copy.
- Underwriting continues. If the value supports the loan, the file moves forward. If not, the conversation about options begins.
Because the appraisal can affect your financing deadline, ask your lender how long it typically takes to schedule and complete in the area you are buying. Rural or acreage properties in North Georgia can sometimes take longer to appraise, especially when there are fewer closely comparable sales.
What Sellers Can Do to Help the Appraisal Go Smoothly
If you are selling, you cannot influence the appraiser’s opinion, and you should not try to. But you can make sure the appraiser has an accurate picture of the home.
- Make the home accessible. Clear paths to the attic, crawl space, mechanical areas, and every room.
- Keep the home clean and in good repair. Condition is part of the analysis, and visible deferred maintenance can be noted.
- Prepare a list of improvements. A simple, factual list of updates, such as a new roof, replaced HVAC system, or remodeled kitchen, with approximate dates, can be shared through the agents.
- Have documentation handy. Permits, receipts, and warranties for major work help confirm what was done.
Common Appraisal Misunderstandings
- “The appraisal and the tax assessment should match.” County tax assessments serve a different purpose and use different methods. They often differ from market value.
- “Every upgrade adds its full cost to the value.” Some improvements add value, but rarely dollar for dollar. Highly personalized updates may add less than expected.
- “Online estimates are the same as an appraisal.” Automated estimates can be a starting point for curiosity, but they do not see the inside of the home or account for its specific condition.
- “A low appraisal means the deal is over.” It is a reason to pause and review options, not necessarily the end of the sale.
Questions Readers Ask
Can I choose my own appraiser?
Generally, no. To protect independence, the lender or its management company selects the appraiser.
Can I be present for the appraisal?
Buyers are not usually present, though sellers or listing agents may provide access. The appraiser’s job is to observe the property independently.
Will I get a copy of the appraisal?
Lenders are generally required to provide a copy of the appraisal to the borrower. Ask your lender when you can expect it.
What if I am paying cash?
Cash buyers are not required by a lender to get an appraisal, but some choose one anyway for peace of mind about the price.
For questions about how an appraisal affects your specific loan, your lender is the best resource. If a contract issue arises, a real estate attorney can explain your rights.
