Home Appraisal: Definition, Cost and Process

If you’re buying, selling or refinancing a home, you’ll likely need a home appraisal — it’s a professional estimate of your home’s value. Below, we’ll cover the ins and outs of home appraisals, including how they work and what you can expect to pay for one.

Key takeaways

• A home appraisal typically costs between $300 and $500, with a national average of $358.
• During an appraisal, a professional appraiser will inspect your home and compare it to nearby properties.
• Your home’s condition, including its size and age, can affect the appraisal.

What is a home appraisal?

A home appraisal is an official estimate of the fair market value of a home. Because most lenders won’t issue a mortgage without one, an appraisal is usually a key step in the closing process.

After a buyer makes an offer, a home appraisal provides assurance to the buyer, seller and lender that the purchase price is reasonable. In the case of a refinance, the appraisal demonstrates to the lender that the house is worth enough to cover the new loan.

How does an appraisal work?

A professional property appraiser will conduct the home appraisal, and then use information about the home, the surrounding neighborhood and recent sales in the area to determine a home’s value.

The appraiser may take one of the following approaches, or a combination of them, when evaluating your property:

• Sales comparison approach: This is when the appraiser looks at recent home sales in your neighborhood to estimate your home value.
• Cost approach: The appraiser looks at the replacement cost of your home, minus depreciation.
• Income approach: This approach uses the income your property generates, such as rental income, to determine its value.

How much does an appraisal cost?

The cost of a home appraisal typically ranges from $300 to $500, with an average cost of $358. However, the cost will vary depending on the size and complexity of the property being sold, the type of mortgage loan the buyer is seeking, the location of the home and other factors.

A buyer with a VA loan, for example, is likely going to pay more than average, as a VA home appraisal must adhere to VA standards and processes. Similarly, the appraisal fee for a single-family home in a high-demand area is likely going to be higher than an appraisal in one with low competition. For example, a VA appraisal for a single-family home in Yellowstone County, Mont., will run you $1,000, while the cost in the state of Rhode Island is $600. (You can find state-by-state appraisal fees on the VA website.)

What does an appraiser look for?

One of the most important factors appraisers look at is what are known as “comps,” short for comparable property sales. In order to estimate a home’s value, an appraiser will gather information about the sales and listings of similar properties in the area. The home being appraised is then compared to these properties across a broad range of characteristics. If its features are above average — offer better or more amenities than the “comps” — then its estimated value will be calculated at a higher amount than those other homes.

When evaluating a home, an appraiser typically considers the following characteristics:

 The home’s condition
 The land the home is on
 How many rooms are in the home
 Square footage
 Special features and upgrades
 The local economy
 The quality of public utilities and other infrastructure

If you’d like a more extensive look at what factors are considered in a home appraisal, look at the Uniform Residential Appraisal Report, the form that’s used by most appraisers.

What could cause a low appraisal?

A home that appears to be in disrepair, smells bad, is messy or has unfinished repairs will likely receive a lower estimated value than a home that gives a beautiful and welcoming first impression. That said, it’s important to remember that many other important factors in an appraisal aren’t directly under your control: location, market trends and the “comps” your appraiser chooses, for example.

5 home appraisal tips

Though some appraisal factors are out of your control, here are some steps you can take to increase the chances of a good appraisal outcome:

1. Make an offer close to the asking price: Making an offer far above the asking price can make securing financing trickier — unless you can cover the difference in cash. Work with an experienced real estate agent to help you with negotiations.
2. Improve curb appeal: Doing some basic landscaping, like mowing the lawn and trimming hedges, can go a long way in making a good first impression for your home.
3. Make a list of home improvements: Gather proof of any home improvements you’ve done, including additions and upgrades, and share it with the appraiser.
4. Do minor repairs: Touch up your home as best you can, such as painting walls, fixing leaky faucets and replacing light bulbs.
5. Clean your home: You’ll want to present your home in the best possible light — that includes freshening it up and making sure there’s not a lot of clutter everywhere.

Why do you need an appraisal?

Anyone buying, selling or refinancing a home through a lender is likely to find that their lender requires a professional, impartial estimate of the home’s value. Common situations in which you may need an appraisal include:

• Buying a home. Because mortgages are loans backed by collateral, lenders need an appraisal to ensure they don’t lend a borrower more money than a house is worth. Lenders also use an appraisal, in conjunction with your down payment amount, to determine your loan-to-value (LTV) ratio.
• Selling a home. Having an up-to-date value for your home can give you confidence in your asking price and provide a leg up in sales negotiations.
• Refinancing a mortgage. An appraisal for a mortgage refinance helps the lender ensure that your home is worth enough to issue you a new mortgage to replace the old one.
• Borrowing against your equity. If you plan to get a home equity loan, a home equity line of credit (HELOC) or a cash-out refinance, an appraisal determines how much available equity you can borrow from.
• Death or divorce. When assets need to be transferred or split among multiple parties, an appraisal can aid in their precise and fair division.
• Disputing a tax assessment. If there’s a problem with your local tax authority’s valuation of your property, an appraisal is proof of value and may help you resolve the issue.
• Filing for bankruptcy. During the bankruptcy process, a judge will need to know your home’s value. Getting an appraisal is one way to establish fair market value.

What buyers and sellers should know about appraisals

Once a buyer’s offer is accepted and both parties sign a purchase agreement, an appraisal is a common next step. Everyone involved in the home sale has a different stake in the relative value of the home and, therefore, in the appraisal process.

What refinancing homeowners should know about appraisals

A home appraisal for a refinance is essentially the same as any other home appraisal, but you may be able to avoid the time and expense it typically takes. Whether you can skip the appraisal depends largely on the type of loan you have.

If you have a conventional loan

You may be able to obtain a property inspection waiver (PIW). Fannie Mae and Freddie Mac allow lenders to issue a mortgage without an appraisal in the case of single-unit residences that qualify for a PIW.

If you have an FHA loan

You can avoid appraisal by refinancing through the FHA streamline program.

If you have a VA loan

You can use an interest rate reduction refinance loan (IRRRL) to refinance without an appraisal.

If you have a USDA loan

Rural homeowners who meet income and other requirements can avoid an appraisal by refinancing through the streamlined assist refinance program.

Refinancing homeowners should be aware that a low appraisal could affect their interest rates, future mortgage payments and closing costs. In some cases, it can even force you to wait for the home’s value to increase before refinancing.

 Use this refinance calculator to estimate your monthly payments after refinancing.

How to dispute a home appraisal

If you aren’t happy with the estimated value your appraiser returned, you have some options. You can order a second appraisal with a different appraiser, but you’ll have to absorb the additional cost with no guarantee of a different result.

If you not only disagree, but think you can provide proof that the valuation is incorrect, you can dispute the original appraisal. In order to do this, you’ll need to provide evidence and documentation.

The step-by-step process to dispute an appraisal may look something like this:

1. Read the appraisal report: Keep an eye out for errors. Federal regulations require mortgage lenders to send the buyer a copy of the home appraisal report (and any other valuation documents related to their mortgage application), but sellers won’t see an appraisal report unless they request it.
2. Collect supplementary market information: You could gather documents that support your analysis of the situation, including appropriate comps.
3. Gather other relevant information: Find proof of any valuable features, amenities or upgrades and be prepared to show any associated permits.
4. Contact the lender: Formally dispute the appraisal and request a reevaluation.