Understanding the Home Appraisal Process: A Complete Guide

When you apply for a mortgage, one critical step stands between your loan application and closing day: the home appraisal. This independent assessment plays a pivotal role in the mortgage transaction, protecting both you and your lender while ensuring the property’s value aligns with the purchase price.

What Is a Home Appraisal?

A home appraisal is an unbiased, professional opinion of a property’s market value, conducted by a licensed or certified appraiser. Unlike a home inspection that examines the property’s condition, an appraisal focuses solely on determining what the home is worth in the current market.

What an appraisal is not: An appraisal is private, it’s not public and it’s not publicly recorded. And crucially, it does not affect your property taxes. 

The Purpose of an Appraisal

The appraisal serves several essential functions in the mortgage process:

Protecting the Lender’s Investment

Mortgage lenders need assurance that the property securing the loan is worth the amount they’re lending. If a borrower defaults and the lender must foreclose, they need to know they can recover their investment by selling the property. The appraisal provides this critical safeguard by confirming the home’s value supports the loan amount.

Protecting the Buyer

An appraisal also protects you from overpaying for a property. If the appraisal comes in lower than the purchase price, it signals that you may be paying more than the home is worth. This gives you leverage to renegotiate the price or reconsider the purchase entirely.

Establishing Fair Market Value

In a competitive housing market where bidding wars drive prices up, emotions can cloud judgment. The appraisal provides an objective, data-driven assessment that grounds the transaction in reality, ensuring all parties base their decisions on actual market conditions rather than sentiment alone.

How the Appraisal Process Works

Step 1: Ordering the Appraisal

Once your mortgage application is submitted and the lender has reviewed your financial information, they’ll order an appraisal from an independent appraiser or appraisal management company. Federal regulations require that lenders maintain independence from appraisers to prevent conflicts of interest, so you cannot choose the appraiser yourself.

Step 2: Scheduling the Property Visit

The appraiser will contact the homeowner or listing agent to schedule a visit to the property. This typically occurs within a week or two of ordering the appraisal, depending on local market conditions and appraiser availability.

Step 3: Property Inspection

During the site visit, which usually takes 30 to 60 minutes, the appraiser will conduct a thorough walkthrough of the property. They’ll measure the home’s square footage, note the number of bedrooms and bathrooms, assess the overall condition, and document any upgrades, special features, or defects. They’ll also photograph the interior and exterior and evaluate the property’s curb appeal, lot size, and neighborhood characteristics.

Step 4: Market Research and Analysis

After the property visit, the appraiser conducts extensive research to determine the home’s value. The most common appraisal method for residential properties is the sales comparison approach, which involves analyzing recent sales of comparable properties—called “comps”—in the same area. The appraiser looks for homes similar in size, age, condition, and location that have sold within the past three to six months.

The appraiser makes adjustments to account for differences between the subject property and the comps. For example, if a comparable home has a finished basement and the subject property doesn’t, the appraiser will adjust the comp’s value downward to reflect that difference.

Step 5: The Appraisal Report

Within a few days to a week after the property visit, the appraiser compiles their findings into a detailed appraisal report. This document includes property details, photographs, a map showing comp locations, an explanation of the valuation methodology, and the final appraised value. Your lender will review this report to ensure it meets their underwriting requirements.

What Happens If the Appraisal Comes In Low?

If the appraisal value falls short of the purchase price, you have several options. You can renegotiate the purchase price with the seller to match the appraised value. You can increase your down payment to cover the difference between the appraised value and the purchase price, maintaining the same loan-to-value ratio. You can challenge the appraisal if you believe it contains errors or overlooked important factors, though successful challenges are relatively rare. Finally, you can walk away from the transaction if your contract includes an appraisal contingency.

Typical Costs and Timeline

Home appraisals typically cost between $400 and $900 for single-family homes, depending on the property’s size, location, and complexity. Your lender will collect this fee upfront or roll it into your closing costs. The entire appraisal process, from ordering to receiving the final report, usually takes seven to ten days, though this can vary based on local market conditions and property complexity. Appraisals for investment properties typically require a rent survey to determine the market rents for each unit. The extra cost of a market survey typically is about $150 to $250.

Preparing for the Appraisal

While you can’t control the appraiser’s final valuation, you can help ensure the property shows well. Make sure the home is clean and decluttered, complete any minor repairs like fixing leaky faucets or patching holes in walls, ensure the appraiser has access to all areas of the home including attics and crawl spaces, and provide documentation of recent upgrades or improvements that add value.

The Bottom Line

The appraisal is a crucial checkpoint in the mortgage process that protects everyone involved in the transaction. By providing an objective assessment of the property’s value, it ensures lenders make sound lending decisions and borrowers pay fair market prices. Understanding how the appraisal works helps you navigate this step with confidence and prepares you for the path to homeownership.

At your mortgage company, we guide you through every stage of the lending process, including the appraisal. Our experienced loan officers are here to answer your questions and help you understand what to expect from application to closing. Contact us today to start your homeownership journey with a team that puts your interests first.