What Is An Appraisal?

An appraisal is the estimated value of a home determined by an inspection of the property and its comparison to recently sold homes in the area to estimate the value.

Before you complete the home buying, selling or refinancing process, it’s required that you first get a home valuation, the most common of which is an appraisal, which gives an estimate of the value of the home in question. The findings from an appraisal determine the amount a mortgage lender will let you borrow for the property.

An appraisal answers the question, “How much is my house worth?” and protects the buyer from paying more than the home is worth. In both a purchase and a refinance, it prevents the lender from giving the homeowner more money than the home is worth.

Real Estate Appraisal Vs. Home Inspection

A home appraisal is a requirement of the lender, while a home inspection is recommended but not mandatory. The buyer is responsible for finding a home inspector and scheduling the inspection while the lender will schedule the appraisal.

An appraisal determines the home’s value, while an inspection determines its condition. 

A home inspection dives more into the functional parts of the home, using special equipment to find problems that may not be seen by the naked eye. An appraisal does a surface-level review of the home and involves research on similar, recently sold homes in the area.

Who Appraises The Home?

Appraisals must be conducted by a licensed, third-party appraiser who has no connection to the buyer, seller or lender. That way, all parties can be sure the determined market value is fair, unbiased and free of any influence from any party that could benefit.

The lender orders the appraisal and the borrower is the one who is responsible to pay for it.


Timeline and Steps To An Appraisal

In general, the home appraisal process can take anywhere from a week to a month from the date it was ordered to the time the appraisal report is provided back to the lender.


1. Your Lender Orders The Appraisal

2. An Appraiser Comes To The House

3. The Appraiser Creates A Report

Once the appraiser completes their home visit, they will review recently sold homes to come up with the fair market value of the home. The appraiser will create a report that should contain a detailed description of the property, including its condition and its basic and unique features. Once the report is completed by the appraiser, it will be submitted to the lender for review.

If the home is appraised at or above the purchase price, the loan will be processed as usual. If the home is appraised lower than the agreed-upon purchase price, more steps will need to be taken since the lender cannot lend more money than the home is worth. 


What To Do If The Appraised Value Is Too Low?

As the buyer, you need the appraisal to match the home price, or else the bank isn’t going to approve your loan. So what can you do when the appraisal comes back too low?

1. Re-negotiate the price – If the seller is open to it, the easiest option is to re-negotiate the sale price of the house. This is particularly effective if the appraisal comes back just slightly lower than the listing price.

2. Request a second appraisal – You may also able to request a second appraisal if you believe the first wasn’t as accurate as it should have been.

If the seller isn’t willing to lower the price and a second appraisal doesn’t come back with a higher amount, your only options are to pay the difference out of pocket or pull out of the deal.