What is a home appraisal?

photo of houses during daytime

A home appraisal is an unbiased opinion of a home’s value, as determined by a professional home appraiser.

What is a home appraisal used for?

When you’re buying or selling a home, or refinancing a home loan, an appraisal is a piece of how the mortgage lender decides if your loan is a reasonable risk. The lender wants to make sure the home’s value is enough collateral to cover the loan amount in case you default on the loan.

Why does a home appraisal matter?

If the appraisal value comes in lower than the price you offered for a home, you might need to make up the difference between the two prices.

For example, let’s say you offer to buy a home for $500,000 and plan to put 5% down. In this scenario, you are planning to put $25,000 down and receive a loan of $475,000 from your lender.

Then, imagine that the appraisal value comes back at $480,000. Since most mortgage lenders can only lend up to 95% of the home’s value, that means your new loan amount is a maximum of $456,000.

Since your contract requires $500,000 for the house (assuming there are no contingencies), that means your new downpayment is $44,000 ($500,000 – $456,000).

The good news is that all buyers have a right to receive a copy of the appraisal and contest the appraisal should they find inaccurate information or better comparables to appeal the appraisal value.

Who does a home appraisal?

A licensed appraiser does the home appraisal. Generally, the mortgage company issuing you a loan will hire the appraiser through a third party (the appraiser doesn’t work for the mortgage company).

How is a home appraisal done?

The appraiser is required to do five things:

1: Perform a complete visual inspection of the interior and exterior areas of the property.
2: Inspect the neighborhood.
3: Inspect each of the comparable sales from the street (or a larger area).
4: Research, verify, and analyze data from reliable public and/or private sources.
5: Report their analysis, opinions, and conclusions in an appraisal report.

Who pays for a home appraisal?

Generally, the homebuyer pays for the appraisal. The cost can vary, but the US average is about $300-$400.

What else should I know about home appraisals?

Our article Appraisals 101 gives you more details on what a home appraisal is, how they work, how comparable homes are chosen, and how much they cost. And because low appraisals can be an issue, we have an article about how homebuyers can survive low home appraisals, too.


Start your Flyhomes real estate experience.


Buy my home

Sell my home

Buy and sell