Home Appraisal: Why It Matters for Your Purchase

Q: What's the difference between appraisal and inspection?

**Appraisal:** Determines market value for the lender **Inspection:** Identifies defects and problems for the buyer You need both. They serve different purposes.

A home appraisal is an unbiased professional opinion of a property’s market value. Lenders require appraisals to ensure the home is worth at least as much as the loan amount. Appraisals cost $400-$700 and take 1-2 weeks to complete. If the appraisal comes in below the purchase price, you’ll need to renegotiate, bring extra cash or walk away from the deal.

Why Lenders Require Appraisals

The appraisal protects the lender’s investment.

Lender’s Perspective

If you stop paying your mortgage, the lender takes back the home. They need to know:

The home is worth what you’re paying
They can recover their money by selling it
The collateral matches the loan amount

Your Protection Too

Appraisals also protect buyers from:

Overpaying in a hot market
Buying a home with hidden defects
Getting stuck with negative equity immediately

How the Appraisal Process Works

Step 1: Lender Orders Appraisal

After your loan application, the lender orders an appraisal through an Appraisal Management Company (AMC). You don’t choose the appraiser—this ensures independence.

Step 2: Appraiser Visits Property

The appraiser schedules a visit (buyer usually doesn’t attend). During the inspection:

Exterior review:

Lot size and location
Exterior condition
Garage and outbuildings
Landscaping and curb appeal

Interior review:

Room count and sizes
Overall condition
Updates and renovations
Quality of construction
Systems (HVAC, plumbing, electrical)

Duration: 30 minutes to 2 hours depending on property size.

Step 3: Comparable Sales Analysis

The appraiser researches recent sales of similar homes (“comps”):

Ideal comps are:

Within 1 mile (closer in urban areas)
Sold within 6 months (3 months preferred)
Similar size (within 10-15%)
Similar style and age
Similar condition and features

The appraiser adjusts values for differences between comps and the subject property.

Step 4: Appraisal Report

A detailed report includes:

Property description
Neighborhood analysis
Comparable sales grid
Photos of subject and comps
Final value opinion

Step 5: Lender Review

The lender reviews the appraisal. If value supports the loan, you proceed. If not, problems arise.

What Appraisers Look For

Condition and Quality

Factor	Impact on Value
Updated kitchen	Positive
Updated bathrooms	Positive
New roof	Positive
New HVAC	Positive
Deferred maintenance	Negative
Outdated systems	Negative
Structural issues	Major negative

Square Footage

Appraisers measure living space. Discrepancies from listing can affect value.

Counts as living space:

Heated and cooled areas
Areas with standard ceiling height
Finished basements (may count differently)

Doesn’t count:

Unfinished basements
Garages
Porches and patios
Unheated spaces

Location Factors

Positive:

Good school district
Low crime area
Desirable neighborhood
Proximity to amenities

Negative:

Busy road
Commercial adjacency
Flood zone
High-crime area
Environmental concerns

Functional Obsolescence

Features that reduce value:

Outdated floor plan
Bedroom accessible only through another bedroom
Only one bathroom in large home
No garage in garage-dominant neighborhood

How Appraisers Determine Value

Sales Comparison Approach

Most common for residential properties. The appraiser:

Finds 3-6 comparable recent sales
Adjusts each comp’s price for differences from subject
Reconciles adjusted values into final opinion

Adjustment example:

Subject home: 3 bed, 2 bath, 2,000 sq ft Comp #1: 3 bed, 2 bath, 1,800 sq ft, sold for $380,000

Size adjustment: +$20,000 (200 sq ft × $100/sq ft)
Adjusted value: $400,000

Cost Approach

What it would cost to rebuild the property, minus depreciation. Used mainly for:

New construction
Unique properties
Properties with few comps

Income Approach

Based on rental income potential. Used mainly for investment properties.

Appraisal Costs

Property Type	Typical Cost
Single-family home	$400-$600
Condo	$400-$500
Multi-family (2-4 units)	$600-$1,000
Luxury/complex property	$700-$1,500
FHA/VA appraisal	$500-$700

Who Pays?

The buyer pays for the appraisal, typically at closing or upfront when ordered. The fee is listed on your loan estimate and closing disclosure.

Appraisal Timeline

Order to scheduling: 1-5 days
Inspection: 30-120 minutes
Report completion: 3-7 days
Total: 7-14 days typical

In busy markets, appraisal scheduling can take 2-3 weeks.

What If the Appraisal Comes in Low?

A low appraisal creates a “gap” between appraised value and purchase price.

Example

Purchase price: $425,000
Appraised value: $400,000
Gap: $25,000

The lender will only loan based on $400,000 value.

Your Options

Option 1: Renegotiate price

Ask the seller to lower the price to appraised value or meet in the middle.

“The appraisal came in at $400,000. We’d like to adjust the purchase price accordingly.”

Option 2: Pay the difference in cash

If you have extra funds, bring the gap amount to closing.

Original down payment (10%): $42,500
Appraisal gap: $25,000
New cash needed: $67,500

Option 3: Split the difference

Seller reduces price by $12,500, you bring extra $12,500.

Option 4: Challenge the appraisal

Request a Reconsideration of Value (ROV) from your lender. Provide:

Better comparable sales the appraiser missed
Evidence of errors in the report
Information about recent improvements

Option 5: Walk away

If your contract has an appraisal contingency, you can cancel and get your earnest money back.

Appraisal Gap Coverage

In competitive markets, buyers sometimes waive appraisal contingency or offer “appraisal gap coverage”—agreeing to pay the difference up to a certain amount.

“Buyer will cover appraisal gap up to $15,000.”

This makes offers more attractive but adds risk.

FHA and VA Appraisal Differences

FHA Appraisals

More stringent than conventional:

Property requirements:

No peeling paint on pre-1978 homes
Handrails on stairs
Working HVAC
Safe electrical
Adequate roofing
No health hazards

If issues are found: Seller must repair before closing or deal falls through.

Appraisal sticks to property: The FHA appraisal is valid for 120 days and follows the property. If your deal falls through, the next FHA buyer uses the same appraisal.

VA Appraisals

Similar to FHA with additional protections:

Minimum Property Requirements (MPRs):

Safe and sanitary condition
Adequate space
Sufficient heating
No termite damage

Tidewater Initiative: If appraiser anticipates low value, they notify lender before completing. Gives opportunity to provide additional comps.

VA loans allow: Seller to pay for required repairs or buyer to escrow funds.

Preparing for an Appraisal

Seller Tips

Exterior:

Mow lawn and trim bushes
Clean up debris
Ensure good curb appeal
Make entrance accessible

Interior:

Clean and declutter
Complete minor repairs
Ensure all utilities work
Provide access to all areas

Documentation:

List of recent improvements with costs
Copies of permits for major work
HOA information if applicable

What Sellers Should Provide

Item	Why It Matters
List of upgrades	Justifies higher value
Receipts for improvements	Proves quality of work
Permits	Shows work was done legally
Comparable sales info	Helps if appraiser is unfamiliar with area

Frequently Asked Questions

How long does an appraisal take?

The inspection takes 30 minutes to 2 hours. The full process from order to report takes 7-14 days, sometimes longer in busy markets.

Can I attend the appraisal?

Usually no. The listing agent or seller may be present to provide access and information, but buyers typically don’t attend.

What happens if appraisal is higher than purchase price?

Congratulations—you have instant equity! The higher value isn’t shared with the seller. You close at the contract price.

Can a seller refuse to lower price after low appraisal?

Yes. The seller can hold firm. You’ll need to pay the difference, challenge the appraisal or walk away (if you have a contingency).

How accurate are home appraisals?

Generally accurate, but not perfect. Two appraisers can value the same property differently. Market conditions, comp selection and property complexity all affect accuracy.

Can I get a copy of the appraisal?

Yes. You paid for it and are entitled to a copy. The lender must provide it at least 3 days before closing (or promptly upon completion if closing is sooner).

What’s the difference between appraisal and inspection?

Appraisal: Determines market value for the lender Inspection: Identifies defects and problems for the buyer

You need both. They serve different purposes.

Understand the home appraisal process and its importance.