Home appraisal and valuation: What you need to know

Key takeaways

• A home appraisal protects the lender by confirming what a property is worth. Lenders require an appraisal to make sure the home’s market value supports the loan amount, reducing their risk if the borrower defaults.
• Appraisals focus on value — not condition the way inspections do. An appraiser evaluates the home’s size, layout, condition and recent comparable sales to determine fair market value, while a home inspection is intended to uncover defects or maintenance issues for the buyer.
• A low appraisal can affect the deal, but buyers have options. If a home appraises below the purchase price, buyers may renegotiate, bring extra cash to closing, dispute errors or walk away if they have an appraisal contingency in their contract.

If you plan to buy a home, financing is likely part of the process. Most mortgage lenders require a home appraisal to determine what the property is worth and how much they are willing to lend.

A home appraisal plays a critical role in a purchase because it establishes the property’s fair market value. Lenders use that valuation to confirm financing for the requested loan amount.

In a real estate transaction, a home appraisal provides assurance to a lender that a property is worth the amount financed in the current market.

A home appraisal is not the same as a home inspection. An inspection helps buyers identify potential issues with a property, while an appraisal focuses on value and whether the home meets lender requirements.

Appraisers evaluate a home’s overall condition and compare it with similar nearby properties. Their goal is to confirm that the property is in acceptable condition and worth the loan amount. Lenders require appraisals because they do not want to lend more than a property is worth, especially if the loan goes into default.

• An appraiser is hired: The lender selects an appraiser from an approved list. The buyer typically pays the fee. 
• The appraiser visits the property: The appraiser visits the property and may speak with the seller’s real estate agent to clarify recent updates or changes. 
• The appraiser conducts an analysis: This includes evaluating the property and analyzing current market data. 
• A final report is prepared: The completed appraisal is sent to the lender and shared with the buyer. 

The appraisal begins with an on-site inspection. The appraiser will:

• Inspect the interior and exterior of the home 
• Measure square footage to confirm accuracy 
• Evaluate systems and structure, including windows, water heaters, appliances and heating, ventilation and air conditioning systems.  
• Look for issues such as dampness, structural damage or foundation concerns 

After the inspection, the appraiser gathers market data, including recent sales of comparable homes. These comparable properties are typically similar in age, size, location and lot characteristics. This information helps determine the home’s fair market value.

The final appraisal report is typically delivered using a Uniform Residential Appraisal Report and includes:

• Property description: Details such as age, size, condition, materials, foundation, appliances and any defects that may affect value. 
• Market analysis: Local home prices, market trends, neighborhood characteristics and land use. 
• Comparable sales: Recently sold nearby properties and how they compare to the subject home. 
• Valuation: The appraiser’s opinion of value based on comparable sales. 
• Photos: Images documenting the home’s condition. 
• Additional documents: Maps, floor plans or other materials that influence value. 
• Appraiser certification: Confirmation that the appraisal follows accepted professional standards. 

According to the National Association of Realtors, home appraisals typically cost between $300 and $800, with an average around $500.

Factors that can influence the cost include:

• Home size: Larger homes take more time to evaluate 
• Location and inventory: Rural areas or markets with few comparable sales may require additional research 
• Home condition: Properties with potential issues may take longer to assess 
• Property type: Multifamily properties, such as duplexes, require evaluation of multiple units 
• Time of year: Seasonal factors may affect accessibility or complexity 

Location can also affect cost. In rural areas with fewer appraisers, travel time and expenses may increase the fee.

The appraisal fee is usually included in the buyer’s closing costs and paid by the homebuyer. The same typically applies when refinancing. If an appraisal is required for another reason, the homeowner generally pays at the time of service.

Several factors can influence a home’s appraised value:

• Location and access to schools or amenities 
• Age of the home and level of maintenance 
• Home style and design 
• Number of bedrooms and bathrooms 
• Usable above-grade square footage 
• Mechanical, electrical and plumbing systems 
• Garage and storage space 
• Recent renovations, especially kitchens and bathrooms 
• Current market conditions
• Lender-required repairs related to safety or structural issues 
• Floor plan functionality 

Financing type can influence appraisal requirements. Conventional loans require appraisers to follow Uniform Standards of Professional Appraisal Practice. FHA, USDA and other loan programs may impose additional standards.

For refinancing, the appraisal affects the loan-to-value ratio. Borrowers with more equity generally present less risk to lenders and may qualify for better interest rates.

• Appraisal above the purchase price: This indicates the home is worth more than the agreed price. It does not change the loan amount or required down payment. 
• Appraisal below the purchase price: Lenders typically base the loan on the appraised value, not the contract price. 

If the buyer has an appraisal contingency, they may renegotiate the price or walk away. If the contingency is waived, the buyer must cover the difference in cash or risk losing the home and earnest money deposit.

The lender orders the appraisal and provides a copy to the buyer. Sellers typically do not receive a copy unless a low appraisal triggers renegotiation under an appraisal contingency.

Buyers can appeal an appraisal if there is clear evidence of errors. This may include:

• Incorrect square footage 
• Missing improvements or additions 
• Use of poor or distant comparable sales 

Supporting documentation is required to challenge the findings.

• Improve curb appeal: Clean up landscaping and exterior areas. 
• Address repairs: Fix obvious issues such as broken windows or missing handrails. 
• Clean and declutter: Present the home in its best condition. 
• Document improvements: Share records of renovations and upgrades. 

How much does a home appraisal cost? Most appraisals cost about $500, with typical prices ranging from $300 to $800.

How long does a home appraisal take? The process usually takes seven to 10 days from the visit to the final report.

What do appraisers look for? Appraisers evaluate the home’s condition, size, layout, number of bedrooms and bathrooms and any improvements, both inside and out.

This story was updated April 29.