The offers on this page are from advertisers who pay us. That may influence which products we write about, but it does not affect what we write about them. Here's an explanation of how we make money and our Advertiser Disclosure.

Home appraisal: How it works and how much it costs

Yahoo Personal Finance· Getty Images
Updated 8 min read

The home appraisal is a crucial step in buying a house. The appraisal report is created by an unbiased, independent third party as an assessment of the property’s financial value.

Here’s what you need to know about how home appraisals work and how much you can expect to pay for one. This way, you can factor the appraisal into your home-buying budget and timeline.

Dig deeper: Is it a good time to buy a house?

A home appraisal is an estimate of a house’s market value, conducted by an independent appraiser who is licensed or certified to assess property values. The appraised value will not necessarily be the same as the listed price of the property. Instead, the appraised value is the estimated worth of the home based on a number of factors, such as the home’s condition and location. This may differ from the seller’s asking price.

Mortgage lenders require an appraisal to assess the current market value of the property. The appraisal protects the seller, borrower, and lender because it assures all parties that the price paid for the home reflects its actual market value.

An appraisal is not the same as an inspection. With a home inspection, the buyer hires an inspector to evaluate the property’s condition, whereas the mortgage lender schedules the appraisal to assess the value. The inspection spells out any problems with the property, and the buyer decides after looking at the inspection whether they still want to buy the house. Inspections generally cost between $300 and $500, and buyers will often have to pay for both the inspection and appraisal.

Appraisers are legally required to be independent and impartial to ensure the process is conducted fairly.

Generally, an appraiser will conduct an in-person assessment of the home before stacking it up against sales of nearby comparable homes, also known as “comps.” If the home has better amenities or more rooms than the comps, it will probably have a higher appraised value.

Appraisers may consider the following factors when comparing a home to its comps:

  • Square footage and number of rooms

  • Age and condition of the home

  • Construction quality of the home

  • Upgrades and special features, such as a fresh coat of paint or a new front door

  • Land area

  • Location

Read more: How much house can I afford?

If you are looking to buy a home, refinance your current mortgage, or take out a home equity loan or line of credit, your mortgage lender will require an appraisal to approve the loan.

Even if an appraisal is not required, there are other reasons homeowners might choose to get a voluntary appraisal. These may include:

  • Selling your home: An appraisal could help you determine your asking price.

  • Tax assessment disputes: If you disagree with the local tax authority’s valuation of your property, an appraisal could provide proof of the accurate value.

  • Estate planning or divorce: If the value of the home must be split among multiple individuals, either because it is an inherited property or because the owners have dissolved their union, an appraisal can help with a fair division.

Though mortgage lenders typically require an appraisal to approve an original mortgage, refinanced mortgage, home equity loan, or HELOC, it is possible to get an appraisal waiver if you meet certain requirements.

Generally, the value of the property will be determined using an automated underwriting system. This system can also determine whether a home is eligible for a waiver. Waivers are limited to primary residences or second homes.

Appraisal waivers are only available from certain lenders and can only be used for single-unit residences, including condos. In addition, the loan must meet loan-to-value ratio requirements to qualify for a waiver. The maximum LTV allowed varies by the type of home loan you’re getting but is typically 80% (meaning you have 20% equity in the house) for a primary residence or second home. The LTV requirements are different for refinanced mortgages and depend on what kind of refinancing you’re applying for.

Though an appraisal waiver can save you money on the cost of the appraisal, it does leave you vulnerable to overpaying for a home.

Dig deeper: How to prepare for a mortgage refinance

When an appraisal is required, federal law requires the appraiser’s client to be the lender — not the buyer or seller. Although the lender schedules the appraisal, the buyer is typically responsible for paying for the appraisal as part of their closing costs.

Since an appraiser must be an impartial third party, buyers cannot shop around to find a different appraisal company to handle this task. Other than requesting an appraisal waiver, the only way a buyer can mitigate the cost of an appraisal is by asking the seller to cover the cost of the appraisal as part of the sales negotiation.

The specific cost of a home appraisal can vary. Specifically, VA, FHA, and USDA loans typically have higher appraisal costs than conventional mortgages. For conventional loans, home appraisal costs depend in part on your location.

A study by the National Association of Realtors revealed that the median cost in the U.S. for an appraisal in 2023 was $500, with 86% of respondents reporting a cost of $400 or more.

If your lender requires an in-person appraisal, the actual walk-through process can take up to several hours, depending on the size and amenities of the home.

The time it takes for the appraiser to complete the appraisal report will vary from one home to another, although the NAR found that it typically takes 11 calendar days from the date the contract is accepted to receive the written appraisal.

No matter how long the appraisal process takes, however, the lender is required to provide the borrower with a copy of the appraisal report as soon as possible, and no later than three days before the closing date. This gives the borrower time to review the appraisal prior to closing and request a re-analysis of the appraisal in case of inaccuracies.

Read more: How long does it take to buy a house?

Since the lender initiates the appraisal after the buyer has made an offer on the house, it is possible the appraiser will value the house at a significantly lower dollar amount than the asking price. This is called an appraisal gap.

If the appraisal value is lower than the asking price, it is possible to challenge the appraisal. You can request a reconsideration of value (ROV) from your lender that will give you an opportunity to correct any errors you see in the original appraisal and provide additional information that may affect the valuation.

Though the ROV might correct any errors or omissions in the original appraisal, the valuation may stand at the lower amount found by the appraiser. If that is the case, the lender could require the buyer to put more money down on the home to secure the mortgage.

Here’s how that might look: Let’s say you put in an offer for a $250,000 home. Your lender has offered you a 90% mortgage, requiring you to put down at least 10%. If the home’s appraised value is the same as the asking price, this means you’ll make the $25,000 down payment and receive a mortgage for $225,000.

But what if the appraisal comes back with a home valuation of only $200,000? In that case, the lender will usually only be willing to offer you a mortgage that is 90% of the appraised value, or $180,000. This means you will need to put down $70,000 to make up for the appraisal gap, instead of $25,000.

If you find yourself in this situation, you can negotiate with the seller to see if they are willing to lower the price. If the seller is unwilling to budge, it may be necessary to cancel the sale. Depending on the details of your contract, there may or may not be costs involved in voiding your contract — but those costs could very well be worth it.

During an appraisal, a home appraiser looks at factors that affect the property's value. They look at the construction, any recent upgrades or repairs, and other factors like the location and size of the property. Then, they put together an official appraisal report detailing the home's value.

An appraisal could be negatively impacted if important appliances, such as the HVAC system, are outdated. A poor foundation or a roof that needs to be replaced will also hurt the appraised value.

An appraiser looks at broad factors such as the size of the house, number of rooms, land area, and location. They also evaluate smaller details you might miss, such as the quality of construction.

Yes, most appraisers look under sinks for water damage, mold, leaks, and any other potential problems.

This article was edited by Laura Grace Tarpley