Home Appraisal Guide: Process, Costs & Low Appraisal Options

Buying a home involves many steps, and the home appraisal is one of the most critical. This professional evaluation determines your property's fair market value—and it can make or break your home purchase. If the appraisal comes in lower than your offer price, you could face a financing gap, renegotiation, or even a failed deal. Understanding how appraisals work, what factors influence property value, and what options you have when things don't go as planned can help you navigate this process with confidence. Whether you're a first-time homebuyer or refinancing your current property, this guide covers everything you need to know about home appraisals.

What Is a Home Appraisal?

A home appraisal is a professional, unbiased estimate of a property's fair market value conducted by a licensed or certified appraiser. According to the Consumer Financial Protection Bureau (CFPB), borrowers are entitled to receive a free copy of their appraisal at least three business days before closing.

The primary purpose of an appraisal is to protect the lender. Since your home serves as collateral for the mortgage, lenders need assurance that the property is worth at least as much as the loan amount. If you default on the mortgage, the lender must be able to recover their investment by selling the property.

Who Orders the Appraisal?

The mortgage lender orders the appraisal after you've made an offer and signed a purchase agreement. While you pay for the appraisal as part of your closing costs, you don't get to choose the appraiser—lenders must use independent, third-party appraisers to ensure objectivity.

How Long Is an Appraisal Valid?

Most appraisals are valid for approximately four months. If your home purchase doesn't close within that timeframe, you may need a new appraisal. This is particularly important if you experience delays during the closing process.

How the Home Appraisal Process Works

Understanding the appraisal process helps you know what to expect and how to prepare. Here's a step-by-step breakdown:

Step 1: Lender Orders the Appraisal

After your offer is accepted and you've completed mortgage pre-approval, the lender orders an appraisal. This typically happens within the first week after the purchase agreement is signed.

Step 2: Appraiser Schedules a Visit

The appraiser contacts the seller or listing agent to schedule an on-site inspection. For purchase transactions, the appraiser typically needs access to the property's interior.

Step 3: On-Site Inspection

The appraiser visits the property and conducts a thorough inspection. This process takes anywhere from 30 minutes for a small home to several hours for larger or more complex properties. During the visit, the appraiser:

• Measures the home's square footage
• Photographs the interior and exterior
• Notes the property's condition
• Evaluates features and amenities
• Identifies any issues that could affect value

Step 4: Research and Analysis

After the inspection, the appraiser researches comparable sales (called "comps") in the area. They analyze recent sales of similar properties to establish a baseline for value.

Step 5: Report Preparation

The appraiser compiles findings into a Uniform Residential Appraisal Report (URAR), the standard form used for most residential appraisals. This detailed report includes property details, photos, comparable sales analysis, and the final value estimate.

Step 6: Report Delivery

The completed appraisal report is delivered to the lender, typically within 7-10 days of the inspection. According to CFPB requirements, you must receive a copy at least three business days before closing.

Types of Home Appraisals

Not all appraisals require an in-person interior inspection. Here are the main types:

Traditional Full Appraisal

The most comprehensive option, a traditional appraisal includes a complete interior and exterior inspection. The appraiser walks through the entire property, measuring rooms, checking systems, and documenting condition. This is the standard for most purchase mortgages.

Drive-By (Exterior-Only) Appraisal

In a drive-by appraisal, the appraiser only inspects the property's exterior. They rely on public records, MLS data, and other sources for interior information. Lenders may accept this type for refinances when the borrower has significant equity.

Desktop Appraisal

A desktop appraisal involves no physical inspection at all. The appraiser uses public records, MLS listings, and other data sources to estimate value remotely. These are typically used only for lower-risk transactions or when an in-person inspection isn't practical.

What Do Home Appraisers Look For?

Appraisers evaluate numerous factors when determining a home's value. Understanding these factors can help you prepare—whether you're buying or selling.

Property Characteristics

The physical attributes of the home significantly impact its value:

• Location: Neighborhood quality, school districts, proximity to amenities, and local crime rates all affect value
• Lot size: Larger lots typically command higher prices, especially in suburban and rural areas
• Square footage: The total living area is a primary value driver
• Age and condition: Newer homes or well-maintained older homes appraise higher
• Layout and design: Functional floor plans are valued over awkward layouts
• Number of bedrooms and bathrooms: More bedrooms and full bathrooms generally increase value
• Quality of construction: Materials, craftsmanship, and structural integrity matter
• Mechanical systems: Age and condition of HVAC, plumbing, and electrical systems
• Amenities: Features like fireplaces, pools, garages, and updated kitchens add value

Market Factors

Appraisers also consider broader market conditions:

• Comparable sales: Recent sales of similar properties in the area (typically within 0.5-1 mile and the past 3-6 months)
• Active listings: Current market competition and inventory levels
• Market trends: Whether prices are rising, falling, or stable
• Days on market: How quickly homes are selling in the area
• Supply and demand: Local housing inventory relative to buyer demand

Negative Factors

Certain issues can decrease a home's appraised value:

• Deferred maintenance or needed repairs
• Outdated systems or fixtures
• Environmental hazards (lead paint, asbestos, radon)
• Proximity to noise (highways, airports, train tracks)
• Flood zone location
• Foundation problems or structural issues
• Non-permitted additions or modifications

How Home Value Is Determined

Appraisers primarily use the sales comparison approach for residential properties. This method compares the subject property to similar homes that have recently sold in the area.

The Sales Comparison Process

1. Identify comparable sales: The appraiser finds 3-6 similar properties that sold within the past 3-6 months within a reasonable distance
2. Analyze differences: Each comp is compared to the subject property
3. Make adjustments: The appraiser adjusts comp values up or down based on differences (more bedrooms, larger lot, better condition, etc.)
4. Reconcile values: The adjusted comp values are weighted to arrive at a final value estimate

Example of Adjustments

Other Valuation Methods

While less common for residential properties, appraisers may also use:

• Cost approach: Estimates what it would cost to rebuild the home from scratch, minus depreciation. Useful for new construction or unique properties.
• Income approach: Based on potential rental income. Primarily used for investment properties.

Home Appraisal vs. Home Inspection: Key Differences

Many buyers confuse appraisals and inspections, but they serve very different purposes. A home inspection focuses on the property's condition, while an appraisal focuses on value.

What Each Examines

Appraisers focus on:

• Market value indicators
• Size and layout
• General condition
• Location and neighborhood
• Comparable sales

Home inspectors examine:

• Roof condition and remaining life
• Foundation and structural integrity
• Plumbing systems and fixtures
• Electrical systems and safety
• HVAC efficiency and condition
• Appliances and functionality
• Water damage and mold
• Pest infestation signs

How Much Does a Home Appraisal Cost?

Appraisal costs vary based on loan type, property characteristics, and location. Here's what to expect:

Conventional Loan Appraisals

For conventional mortgages, home appraisals typically cost between $300 and $500, with the national average around $350-$400. According to NerdWallet, more complex or larger properties may cost $600-$1,000 or more.

FHA Loan Appraisals

FHA appraisals generally cost between $400 and $700. The higher cost reflects the additional requirements FHA appraisers must verify for HUD compliance. According to HUD guidelines, fees must be "customary and reasonable" for the local area.

VA Loan Appraisals

VA appraisals range from $525 to $1,300 depending on location. The Department of Veterans Affairs sets maximum fees that vary by state and county. Rural properties or those requiring additional travel may incur extra charges.

Factors Affecting Appraisal Costs

Several factors can increase appraisal fees:

• Property size: Larger homes take longer to inspect
• Property complexity: Multi-family, historic, or unique properties cost more
• Location: Urban areas often have higher fees; rural properties may have travel surcharges
• Rush orders: Expedited appraisals cost extra
• Property access: Difficult-to-access properties may incur additional charges

FHA Appraisal Requirements

If you're using an FHA loan, the appraisal must meet HUD's Minimum Property Standards (MPS), often called the "3 S's":

Safety Requirements

• No major health hazards for occupants
• All doors accessible with functional locks
• Stairs must have handrails
• No exposed or damaged electrical wiring
• Adequate lighting in living spaces

Soundness Requirements

• Structurally sound foundation
• No active termite infestation
• Roof in acceptable condition
• No significant water damage

Security Requirements

• Secure entry points (doors and windows)
• Functional windows that open and close properly
• Proper door locks

Additional FHA Requirements

FHA appraisals also check for:

• Functioning heating system (air conditioning not required)
• Adequate water pressure with hot and cold water
• No chipping or peeling paint (especially in pre-1978 homes due to lead paint concerns)
• Proper drainage away from the foundation
• Working appliances
• Utilities must be turned on during the inspection

VA Appraisal Requirements

VA loans have their own Minimum Property Requirements (MPRs), which are similar to FHA standards but with some differences.

Key VA MPRs Include:

• Adequate space for living, sleeping, cooking, dining, and sanitation
• Safe access via public or private all-weather road
• Proper water drainage away from the home
• Safe, continuous water supply with hot water capability
• Sanitary sewage disposal system
• Adequate heating for the climate
• No defective conditions affecting safety or structural integrity
• Roof in good condition without active leaks
• Crawl spaces must be accessible and properly ventilated
• Dry basement without structural problems
• Exterior paint providing thorough coverage

VA Appraisal Timeline

VA appraisals typically take 7-20 days depending on location and appraiser availability. The VA sets timeliness standards by region, and delays can occur in areas with few qualified VA appraisers.

When VA Appraisals Are Required

• Required: Purchase loans, cash-out refinances
• Not required: VA Streamline Refinance (IRRRL)

What to Do If Your Appraisal Comes In Low

A low appraisal occurs when the appraised value is less than the purchase price. This creates a financing gap because lenders won't loan more than the appraised value. Here are your options:

Option 1: Renegotiate the Purchase Price

The most straightforward solution is asking the seller to lower the price to match the appraisal. This works best in buyer's markets or when the seller is motivated. Your real estate agent can present the appraisal as evidence supporting a price reduction.

Option 2: Pay the Difference Out of Pocket

If you have sufficient funds, you can cover the "appraisal gap" with additional cash. For example, if the home is priced at $400,000 but appraises for $385,000, you'd need an extra $15,000 beyond your down payment.

Option 3: Meet in the Middle

Negotiate a compromise where both parties share the gap. Using the example above, the seller might reduce the price by $7,500 to $392,500, and you'd bring an extra $7,500 to closing.

Option 4: Request a Reconsideration of Value (ROV)

If you believe the appraisal contains errors or used inappropriate comparables, you can request a reconsideration of value through your lender. Provide:

• Evidence of factual errors (wrong square footage, missing features)
• Better comparable sales the appraiser may have missed
• Documentation of recent improvements or upgrades
• Market data supporting higher value

Option 5: Get a Second Appraisal

You can pay for another appraisal, though lenders aren't required to accept it. This strategy works best when you have strong evidence the first appraisal was flawed.

Option 6: Walk Away

If you have an appraisal contingency in your contract, you can cancel the purchase and receive your earnest money back. This protects you from overpaying in situations where the numbers simply don't work.

Understanding the Appraisal Contingency

An appraisal contingency is a clause in your purchase agreement that allows you to back out—or renegotiate—if the appraisal comes in below the purchase price.

How It Protects Buyers

With an appraisal contingency:

• You can cancel the contract if the appraisal is too low
• Your earnest money deposit is refundable
• You have leverage to renegotiate the price
• You're protected from overpaying

Waiving the Appraisal Contingency

In highly competitive markets, some buyers waive this contingency to make their offer more attractive. This is risky because:

• You're obligated to pay the difference if the appraisal is low
• You could lose your earnest money if you can't close
• You might end up paying more than the home is worth

Tips for Protecting Yourself

• Keep the appraisal contingency if possible
• Set a specific gap amount you're willing to cover
• Research comparable sales before making an offer
• Get pre-approved to understand your financing limits
• Work with an experienced real estate agent who knows local values

How to Prepare for a Home Appraisal

If you're selling or refinancing, preparing for the appraisal can help ensure the best possible value.

For Sellers

• Boost curb appeal: Clean landscaping, fresh paint on the front door, and power-washed walkways make great first impressions
• Make minor repairs: Fix leaky faucets, replace broken fixtures, and address obvious maintenance issues
• Compile documentation: Gather receipts and permits for recent improvements
• Clean and declutter: A tidy home appears more spacious and better maintained
• Provide access: Ensure the appraiser can reach all areas, including the attic, basement, and garage
• List upgrades: Create a written list of improvements with costs and dates

For Buyers

• Review the appraisal carefully: Check for factual errors in square footage, room count, or features
• Research comparables: Know what similar homes have sold for recently
• Attend the inspection (if allowed): Some appraisers permit buyers to be present
• Ask questions: Request clarification on anything you don't understand

Common Appraisal Myths

Myth: Assessed Value Equals Appraised Value

Reality: Tax assessments and appraisals serve different purposes. Assessed values for property taxes are often lower than market value appraisals and may be updated less frequently.

Myth: The Appraiser Works for the Buyer

Reality: The appraiser works for the lender. While buyers pay for the appraisal, its primary purpose is protecting the lender's investment.

Myth: Online Value Estimates Are Accurate

Reality: Automated valuation models (AVMs) from websites like Zillow provide rough estimates but can be significantly off. They can't account for a home's actual condition, recent upgrades, or unique features.

Myth: Renovations Always Increase Value Dollar-for-Dollar

Reality: Not all improvements add equal value. A $50,000 kitchen renovation might only add $30,000-$40,000 in appraised value, depending on the neighborhood and market.

Conclusion

A home appraisal is a crucial step in the home buying process that protects both you and your lender. Understanding how appraisals work—from the inspection process to value determination—helps you navigate potential challenges like a low appraisal. Remember these key takeaways:

• Appraisals protect everyone: They ensure you're not overpaying and lenders aren't overextending
• Preparation matters: Whether buying or selling, being prepared can influence the outcome
• Know your options: If the appraisal comes in low, you have several paths forward
• Keep your contingency: Unless you have substantial cash reserves, maintain your appraisal contingency

By understanding the appraisal process and your options, you'll be better equipped to handle whatever valuation comes back—and move confidently toward homeownership.