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What is a home appraisal and how do they work?

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by Emily Moore Home and Mortgage Journalist
home appraiser shaking hands with homeowner

Home appraisals are an important part of buying and selling a home. The primary purpose is to put an estimated value on a property based on the condition of the home and the comparable properties in the area. The estimated value from an appraisal is most commonly used by mortgage lenders, who want to make sure the loan amount is in line with what the home is worth. For instance, a lender would not want to approve a mortgage for $400,000 on a home with an appraised value of only $350,000.

If you're buying or selling a home, it's important to understand what a home appraisal is and how it works.

What is a home appraisal?

If you have ever bought or sold a home, you are likely familiar with home appraisals. However, if you're a new buyer or it's been a while, there are details about home appraisals to keep in mind.

Any real estate transaction requires an estimated value of the home. The most common method of getting the valuation is a home appraisal. During the appraisal a licensed assessor will visit the property and give their opinion on what the house is worth. This amount is then used by lenders to decide how much to lend for a mortgage on the property.

A home appraisal is conducted by a certified assessor who comes to the home and gives an estimated value of what it's worth. They give their opinion on the value by looking at the home and comparing it to similar homes in the area. The amount on the appraisal is often used when lenders are calculating how much to give a borrower for a mortgage.

A home appraisal differs from a home inspection, which is usually done before closing on a property to make sure there are no problems that need to be addressed, like roof leaks, a broken HVAC unit or plumbing issues.

How do home appraisals work?

A licensed assessor will visit the home to conduct an appraisal.

Home appraisals are pretty consistent in terms of what they look at to come to a property valuation. The appraiser will have a list of items to look at and will walk through the property before making a comparison to other properties. They will likely take photos of your property and will sometimes go to the comparable properties and take photos of the outside of those homes as well.

How much does a home appraisal cost?

An appraisal can cost anywhere from $200 to $600, depending on your location.

The buyer usually pays for the home appraisal. Even though it's usually the lender that requires an appraisal, they still pass the cost to the buyer. The amount is paid at closing, but you can sometimes negotiate with the seller to cover the cost. If a seller wants to get an appraisal for their own purposes, they pay for it.

What do home appraisers consider during an appraisal?

Each appraiser will have a list of things to consider —both inside and outside — in order to calculate the value of the home. Some of the most common items include:

  • Year built
  • Location
  • Size of home and lot
  • Bedrooms and bathrooms
  • Foundation and structure
  • Roofing
  • Landscaping
  • Lighting and fixtures
  • HVAC system
  • Amenities like an outdoor kitchen or sunroom
  • Unattractive features
  • Pool systems
  • Upgrades or improvements

One of the most important parts of an appraisal is the comparison to similar homes. The appraiser will look at the items in your home and see how the condition compares to other properties recently sold in the area. Comparable properties are usually similar in size, number of bedrooms, year built and the neighborhood.

What buyers need to know about home appraisals

As a buyer, you should know how appraisals work and how the results are used. An appraisal tells you more than just the valuation of the home; it gives you insight into the condition of the property you want to buy.

What can you learn from the results of a home appraisal?

While an appraisal is just a visual inspection, it still gives a lot of excellent information about a home. Any items the appraiser sees that might need repairs will be listed, which can help you determine costs you might face after you purchase the home. The appraisal report will also give you details about the property, like square footage, number of bedrooms and bathrooms and other amenities.

The comparison to other homes in the area can also give you an idea of the potential for resale. For instance, is the home currently the highest in value in the area? Is it the lowest in value? This information can help you, the buyer, determine how much money you want to put into repairing the home or if the value is already maximized. The appraisal can help you decide if the home is priced correctly.

What can happen if you don't get a home appraisal?

In most cases lenders will require that you get an appraisal if you're buying a home. There are some exceptions with conventional loans where an appraisal can be waived, but these cases aren't common.

An appraisal can also help buyers avoid overpaying for a home. The money it costs to get the estimate can be worth it to know you're paying a fair price.

When do homebuyers and homeowners need to get home appraisals?

The most common use for a home appraisal is to determine how much money a lender will approve for a mortgage. It's also used when refinancing a loan. When you're applying for a mortgage, the appraisal will help the lender decide if it will approve a loan. The lender wants to be sure it doesn't lend more than the property is worth.

What sellers need to know about home appraisals

An appraisal also helps a homeowner assess how much their home is worth. If a home is priced way above the valuation based on comparable properties in the area, it may be difficult to sell.

What does it mean to get a negative home appraisal?

Many things can negatively affect the estimated home value on an appraisal. Some examples include outdated HVAC systems, outdated electrical systems, missing fixtures or appliances, and original windows in an older home.

The main thing to consider is if the valuation comes in lower than the sale price of the home. In that case, a lender is unlikely to lend the amount needed to get a mortgage on the property.

How can you maximize the results of a home appraisal?

You do not need to make any major repairs or upgrades before an appraisal, but there are some quick and easy things you can do to help maximize the value.

  • Refresh paint
  • Clean away clutter
  • Have a list of any improvements to the home
  • Create welcoming curb appeal

While these items are not guaranteed to affect the valuation, they can’t hurt either.

How a home appraisal affects your mortgage loan amount

The appraisal affects the amount a lender will approve for a mortgage. Mortgage lenders approve loans based on what the home is worth — not what the seller is asking for it or what a buyer will pay.

The biggest impact on the loan amount happens when the appraisal comes back well below the sale price for a home. It's not likely that the lender will approve you for a mortgage amount significantly above the appraisal price.

However, if it's a home you really want, there are other options. Some buyers choose to pay more cash to make up the difference between the home's value and the purchase price. There are also opportunities to get a second mortgage to cover the difference; it’s important to discuss this option with a financial advisor first.

What can you do if your house appraises for less than the offer?

If an appraisal comes in lower than expected and the mortgage is denied, there are a few things to consider:

  1. Double-check the appraisal for any mistakes.
  2. Make sure any improvements to the home are listed.
  3. As a seller, you can lower the asking price.
  4. As a buyer, you can offer to pay cash to make up the difference.

There's also the option of having another appraisal completed by a different company, although this adds an additional cost.

Whether you're buying or selling a home, an appraisal is usually a good idea. Not only can it give you an idea of the home's value, but it can also help determine the necessity of updates to the home, find needed repairs and even help prepare for sale at a later date.

Home appraisals FAQ

Who pays for the home appraisal?
Although the lender usually orders an appraisal, the buyer usually pays for the home appraisal as a part of their closing costs.
Can you be present during home appraisal?
There is no law that says you cannot be at home during an appraisal, but it is best to consult with the appraiser coming to your home to know their policy.
When will you get the results of the home appraisal?
It can take a few days to a week, depending on the appraiser's workload and the complexity of the checklist they are working with to come to a valuation.
How should I prepare for a home appraisal?
The most important thing to do is to look around your home for any obvious concerns. Anything that is a quick and affordable fix might be worth addressing. You should also make the inspector aware of any improvements you have made, like new windows or granite countertops.

You can also look at the comparable homes sold recently to see if there is anything your home is lacking that might affect the value. People often ask if they need to clean their home before an appraisal; while it won’t make a significant difference, it can’t hurt.

How often do you need to get a home appraisal?
If you are not planning to sell, you may want to get an appraisal every few years just to see how the local real estate market trends are affecting your home value.
What increases the appraisal value of a home?
Improvements to the home, a desirable location and amenities like a pool or garden area can increase the appraisal value of a home.
How can you improve your home appraisal?
Take a good look around your home through the eyes of an inspector. Are there any quick fixes you can do that they will notice? This might include things like improving landscaping, fixing a broken board in the fence or repairing a leaky faucet.

If you have time before planning to sell, making major improvements is the most likely way to increase the value of your home. This might include getting new windows, upgrading the kitchen or updating a bathroom.

Should I guide the appraiser through the home?
Each appraiser works differently and will let you know what their expectations are. It is important, however, to mention any upgrades or improvements you have made to your home.
How long does home appraisal take?
Depending on the size of the house, the appraisal can take anywhere from an hour to a few days.
When do appraisals happen in the homebuying or selling process?
The appraisal usually happens after an offer has been accepted and after the home inspection. Your lender will probably require a home appraisal before finalizing your mortgage loan.
What hurts a home appraisal?
Some of the main things that can hurt your home appraisal include structural problems, overly customized features, poor curb appeal and unfavorable conditions, like backing up to a busy street.
How long is a home appraisal valid?
A home appraisal is usually good for four months, or 120 days. If you do not close on the home within that amount of time, you will need to get another appraisal.

Bottom line: Is a home appraisal worth it?

Take a walk through your home and look at it through the eyes of an inspector.

An appraisal is both an essential and helpful part of buying and selling a home. A lender usually requires an appraisal to make sure the loan amount isn’t higher than what the home is worth. If you’re a buyer it helps protect you from overpaying for a home. If you're a seller, an appraisal gives insight into what steps you can take to increase the value of the property.

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Profile picture of Emily Moore
by Emily Moore Home and Mortgage Journalist

Emily Moore is a journalist and writer who has been writing professionally for more than 10 years. She specializes in real estate writing and has worked with nationally known news organizations and companies. She has degrees in journalism and political science from Michigan State University.