How a Home Appraisal Works and Why It Matters

An appraisal is one of the last things standing between an accepted offer and a closed sale, and it can throw a wrench into a deal if the number comes back low. Here's what actually happens during an appraisal and what it means for your purchase.

What the Appraiser Actually Does

Your lender orders a licensed, independent appraiser to visit the property and estimate its market value based on size, condition, upgrades, and recent comparable sales nearby. The appraiser has no stake in the sale price, which is the whole point.

Why Lenders Require One

A lender won't loan more than a home is worth, since the property is the collateral for the loan. The appraisal protects the bank, but it also protects you from significantly overpaying for a home.

If the Appraisal Comes in Low

If the appraised value comes in under the contract price, you generally have a few options: renegotiate the price with the seller, pay the difference in cash, challenge the appraisal, or walk away if your contract includes an appraisal contingency. Which option makes sense depends on the market and how badly you want the house.

What Sellers Should Know

A low appraisal affects sellers too, since it can derail a sale even after an accepted offer. Pricing a home realistically from the start, based on solid comparable sales, is the best way to avoid an appraisal problem later.