An appraisal is an independent, professional opinion of a property's market value. The lender orders it — you typically pay the fee — to confirm the home is worth at least what you're borrowing against it before the loan closes.
A licensed appraiser inspects the property and compares it to recently sold, similar homes nearby (comparable sales, or "comps") to arrive at an estimated value, documented in a formal appraisal report.
How it works
The appraiser visits the home, measures and photographs it, notes its condition and features, and pulls recent sales of comparable properties in the area. Adjustments are made for differences — an extra bedroom, a larger lot, a finished basement — to arrive at a final opinion of value.
If the appraisal comes in at or above the contract price, the transaction proceeds as planned. If it comes in below the contract price — say, a home under contract for $420,000 appraises at $400,000 — you have real options: renegotiate the price with the seller, bring extra cash to cover the $20,000 gap, formally dispute the appraisal with additional comparable sales, or walk away if your contract includes an appraisal contingency.
Some refinances qualify for an appraisal waiver, where the lender relies on an automated valuation model instead of sending an appraiser out. Waivers are more common on well-documented properties refinancing without cash out, and they save both the fee and a week or more of waiting.
When it matters to you
The appraisal matters most in the days right after your offer is accepted, when a low appraisal can threaten the entire deal if it isn't handled quickly.
It matters for refinances too — a lower-than-expected appraisal can change your loan-to-value ratio enough to affect pricing or mortgage insurance requirements.
Common mistakes
- Waiving the appraisal contingency in a competitive market without a real financial plan for covering a potential value gap.
- Assuming an online home-value estimate will match the appraiser's number — only a licensed, in-person appraisal sets the figure a lender relies on.
- Not providing the appraiser with information about recent upgrades or renovations that comparable listings might not reflect.
- Panicking at a low appraisal instead of exploring renegotiation, a formal dispute with better comps, or bridging the gap with additional cash.
FAQs
What happens if the appraisal comes in low?
You can renegotiate the price with the seller, bring additional cash to cover the gap, dispute the appraisal with stronger comparable sales, or walk away if your contract includes an appraisal contingency.
Who pays for the appraisal?
The buyer typically pays the appraisal fee, even though the lender orders it, since the appraisal protects the lender's collateral as much as it protects the buyer from overpaying.
Can I skip the appraisal?
Sometimes, on certain refinances that qualify for an appraisal waiver using an automated valuation instead. Most purchase loans require a full appraisal.