Appraisal
A licensed appraiser's independent estimate of a home's market value, ordered by the lender to confirm the property is worth the loan amount.
What does appraisal mean?
Before funding a mortgage the lender orders an appraisal — an unbiased professional opinion of what the home is worth, based on its condition and recent sales of comparable properties nearby. It protects the lender from lending more than the home is worth, and protects you from overpaying. If the appraisal comes in below the purchase price, you may have to renegotiate, pay the difference, or walk away under an appraisal contingency.
How the appraiser reaches a value
The lender orders the appraisal through a process designed to keep the appraiser independent, and you usually pay for it — commonly several hundred dollars for a single-family home. For most homes the appraiser relies on the sales comparison approach: recent nearby sales of similar homes, adjusted for differences in size, condition and features. Cost and income approaches are used for new construction and rentals.
You are entitled to a copy of the appraisal at least three business days before closing. Some conventional loans qualify for an appraisal waiver; FHA appraisals also check that the home meets minimum property standards.
If the appraisal comes in low
- Renegotiate the price with the seller to the appraised value.
- Cover the gap in cash — the lender bases the loan on the lower of price or value.
- Request a reconsideration of value with better comparable sales.
- Walk away if your contract has an appraisal contingency.
Frequently asked
What happens if the appraisal comes in low?
You have three options: renegotiate the price down toward the appraised value, pay the difference in cash, or invoke an appraisal contingency to walk away.
Lenders lend against the appraised value, not the higher contract price, so the gap is yours to bridge.
Who pays for the home appraisal?
The buyer usually pays, as part of closing costs — commonly $400 to $700. The lender orders it from an independent appraiser to keep the valuation unbiased, but the fee lands on you.
Put it to use
Home Closing Cost Calculator
Estimate the closing costs a buyer pays: origination, title, escrow, appraisal and prepaids.
Mortgage Qualifier Calculator
Check whether your income, debts and down payment qualify you for the loan you want.
Down Payment Calculator
Turn a down-payment percentage into dollars and see whether you clear the 20% PMI threshold.
Related terms
All glossary terms