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How Much is a Home Appraisal and How Does It Work?

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A home appraisal is a professional opinion of how much a property is worth, and it’s an integral part of the mortgage process. It also reassesses the value of a home you own if you want to refinance or sell. Several different factors can affect how much home appraisals cost, so pull up a seat and take notes to get the lowdown on the process.

What is a home appraisal?

A home appraisal is an estimate of a home’s value, according to the unbiased opinion of a licensed property appraiser. The appraiser uses information about the home, the surrounding neighborhood and recent nearby sales to determine a home’s value.

How much is a home appraisal?

A home appraisal fee might cost $300 to $400, but it depends on the location, property, loan type and level of work involved for the appraiser.

You could pay even more if you’re getting a loan backed by the U.S. Department of Veterans Affairs (VA). The home appraisal cost for a VA loan on a single-family home is $525 in New York, $600 in California and $675 in most of North Dakota, for example. (You can find state-by-state appraisal fees on the VA website.)

A mortgage lender typically orders a home appraisal and includes the fee in your closing costs.

Why do you need an appraisal?

Lenders use a home appraisal to ensure they’re not lending you more money than the property is actually worth. Here are situations when you may need an appraisal:

  • Buying a home. An appraisal helps determine whether the property’s value is aligned with the purchase price and your loan amount. Mortgage lenders also use an appraisal in conjunction with your down payment amount to determine your loan-to-value ratio.
  • Selling a home. Having an up-to-date value for your home may help make selling your home easier if you have appraisal data to back up your asking price.
  • Refinancing a mortgage. In many cases, you’ll need an appraisal for a refinance to verify that your home’s value is sufficient enough to replace your existing mortgage with a new one.
  • Borrowing against your equity. If you plan to get a home equity loan, home equity line of credit or a cash-out refinance, an appraisal determines how much available equity you can borrow from.
  • Death or divorce. When a value needs to be attached to a home in the event of a death or divorce, an appraisal can come in handy, especially if the asset is being divided in some way.
  • 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. A bankruptcy judge will want to know your home’s value, so it makes sense to order an appraisal.

How do appraisers determine home value?

A real estate appraiser typically uses the “sales comparison approach” to determine a home’s value. With this method, appraisers look for comparable sales, or similar properties that have been sold or are currently listed for sale nearby. The appraiser then makes adjustments based on the features of the comparable properties to arrive at a final opinion of value.

When evaluating a home’s characteristics, an appraiser typically considers:

  • The home’s condition
  • The land the home is attached to
  • Room count
  • Square footage
  • Special features and upgrades

Most home appraisers use Fannie Mae’s Uniform Residential Appraisal Report when conducting appraisals.

How to dispute a home appraisal

When your mortgage lender shares your home appraisal report with you, it will inform you one of three things about the home in question:

  • The value matches the sales price.
  • The value is higher than the sales price.
  • The value is lower than the sales price.

In cases where your appraisal is equal to or higher than the purchase price outlined in your sales contract, you should be good to go. It’s unlikely the seller will try to increase the price unless they have such a contingency in the contract.

If your appraisal is lower than the purchase price, though, you’ll need to negotiate with the seller to lower the price or bring more money to the closing table. Another option is to walk away from the transaction if you have an appraisal contingency in your contract.

You could also dispute a low appraisal by taking the following steps:

  • Review the appraisal report for errors and inconsistencies, such as incorrect square footage or missing improvements.
  • Find recent sales from the last 90 days in your neighborhood that may not have been factored into the appraisal. A real estate agent can help you with this.
  • Gather proof of improvements and upgrades made to the home.
  • Verify that the appraisal report came from a local professional.
  • Put your dispute in writing and submit it to your lender.

If your lender does order a second appraisal, you’ll likely pay a second appraisal fee.

Home inspection vs. appraisal

Home appraisals and home inspections involve two different processes. Getting a home appraisal leads to an opinion of your home’s value, while an inspection provides a report of your home’s overall condition.

An appraiser makes a general assessment of the quality and condition of your home and property, and combines that information with research on comparable sales to arrive at a fair valuation.

On the other hand, a home inspector digs much deeper into the nuts and bolts of your house, scrutinizing the interior and exterior structure and major systems, plus searching for any overall defects. A home inspection fee might range from $300 to $500.

Home inspections may not be required for a home purchase, but it’s still wise to get one so you understand your home’s condition and any needed repairs. Home appraisals are almost always required when financing a house purchase.


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