After your offer is accepted, your attention quickly shifts from house hunting to inspections, mortgage paperwork, underwriting requests, and closing deadlines. One step buyers often overlook until the lender orders it is the home appraisal.
Often, buyers confuse the home appraisal with the home inspection, and while that’s understandable, it’s important to know that the two serve different purposes. An inspection evaluates the home’s condition, while an appraisal determines its market value.
Understanding how the appraisal process works can help you prepare for situations such as a low appraisal, unexpected negotiations, or changes to your financing plan.
What Is a Home Appraisal?
A home appraisal is an independent assessment of a property’s market value. Mortgage lenders require appraisals because they want to verify that the home’s value supports the amount of money the lender plans to finance.
For example, if you agree to purchase a home for $350,000 and apply for a mortgage, your lender wants to verify that the property supports that value.
Lenders use appraisals to avoid financing more money than a home may realistically be worth.
The appraisal protects the lender, but it can also help you avoid paying $25,000 or $50,000 above what similar homes recently sold for in the same market.
Once you understand why lenders require appraisals, the next question becomes who actually coordinates the process.
Who Orders the Appraisal?
Many buyers assume they choose the appraiser, but lenders usually handle that responsibility.
After the lender approves the next stage of your application, they typically hire an independent licensed appraiser to evaluate the property. Federal rules generally require appraisers to remain independent from buyers, sellers, and real estate agents to reduce conflicts of interest.
Although buyers often pay appraisal fees as part of closing costs, lenders manage the process.
Because the lender oversees the process, buyers often wonder what information appraisers actually use to determine value.
What Does an Appraiser Look At?
Appraisers evaluate several factors when determining value:
- ⬥Square footage
- ⬥Number of bedrooms and bathrooms
- ⬥Property condition
- ⬥Renovations and upgrades
- ⬥Lot size
- ⬥Age of the home
- ⬥Location
- ⬥Recent comparable sales
Comparable sales, often called “comps,” often become one of the biggest factors in determining value because they show what buyers recently paid for similar nearby homes.
For example, if similar homes recently sold for $375,000 to $390,000 but the home you’re buying is under contract for $425,000, the appraiser may question the higher price.
What Happens During the Appraisal?
Most appraisals follow a predictable process that includes a property visit, market research, and a written valuation report.
Typically, the appraiser will:
- Visit the property
- Measure the home’s size
- Evaluate interior and exterior conditions
- Photograph important features
- Review upgrades and renovations
- Research comparable sales
- Prepare the final report
The on-site visit may take less than an hour for some homes, while larger properties or unique homes may require more time.
Once the report reaches the lender, the appraised value can affect what happens next in your purchase.
What Happens if the Appraisal Matches the Purchase Price?
This is generally the result buyers hope to see.
If the appraiser assigns a value that matches the purchase price, the lender can typically continue processing the loan without asking for changes to financing or pricing.
For example:
- ⬥Purchase price: $400,000
- ⬥Appraised value: $400,000
What Happens if the Appraisal Comes in Higher?
Sometimes homes appraise above the purchase price.
For example:
- ⬥Purchase price: $400,000
- ⬥Appraised value: $420,000
The higher valuation may suggest you agreed to a purchase price below what similar market data supports.
Some buyers immediately assume a higher appraisal creates instant equity. While that can happen, future market conditions and local housing trends can still influence long-term value.
What Happens if the Appraisal Comes in Lower?
Low appraisals often create problems because they can force buyers to renegotiate the purchase or bring additional cash to closing.
For example:
- ⬥Purchase price: $400,000
- ⬥Appraised value: $375,000
Because lenders usually base loan amounts on appraised value instead of contract price, you may need to:
- ⬥Renegotiate with the seller
- ⬥Pay the difference out of pocket
- ⬥Request a reconsideration if you identify errors
- ⬥Use an appraisal contingency to cancel the contract
Because many buyers confuse appraisals with inspections, it also helps to understand where the two processes differ.
Understand the Difference Between an Appraisal and an Inspection
A home inspection asks:
“What problems does this house have?”
A home appraisal asks:
“What is this house worth in today’s market?”
A house can receive an acceptable appraisal and still need expensive repairs. Likewise, a well-maintained home can appraise below the purchase price if nearby sales support a lower value.
Tips for Buyers Preparing for the Appraisal Process
You cannot control the appraisal itself, but you can prepare by:
- ⬥Reviewing comparable sales with your real estate agent
- ⬥Understanding your appraisal contingency
- ⬥Budgeting for appraisal costs
- ⬥Avoiding major financial changes during underwriting
- ⬥Asking questions if results seem unclear
Knowing your options ahead of time can help you respond more confidently if the appraisal changes the terms of your purchase.
Finally, many buyers view the appraisal as a test they need to pass, but it works more like a checkpoint. The report can affect financing and negotiations, yet it also provides another layer of information before you make one of the largest purchases of your life.
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