A home appraisal is an independent assessment of a property’s market value, ordered by the lender to ensure they’re not lending more than the home is worth. It’s one of the most important — and least understood — steps in the buying process.
How Appraisals Work
A licensed appraiser visits the property and evaluates:
- Location: Neighborhood quality, school district, proximity to amenities
- Condition: Interior and exterior condition, needed repairs
- Size: Gross living area, lot size, bedroom/bathroom count
- Comparable sales: 3-6 similar homes sold in the past 6 months within a reasonable distance
- Market conditions: Current supply and demand in the local market
The appraiser adjusts comparable sales for differences (an extra bedroom adds value, a busy street subtracts it) and arrives at an opinion of value.
What Appraisals Cost
| Appraisal Type | Cost |
|---|---|
| Standard single-family | $400-$700 |
| FHA appraisal | $400-$700 |
| Condo | $450-$750 |
| Multi-family (2-4 units) | $600-$1,000 |
| Rush appraisal | +$100-$300 |
The buyer pays for the appraisal as part of closing costs. It’s non-refundable — if the deal falls through, you don’t get the appraisal fee back.
When the Appraisal Comes in Low
A low appraisal means the appraiser values the home below the agreed purchase price. This creates a gap the lender won’t finance. Your options:
- Renegotiate the price: Ask the seller to reduce to the appraised value. In a buyer’s market, this often works.
- Cover the gap with cash: Pay the difference between appraised value and purchase price in additional cash. This reduces your loan-to-value ratio.
- Challenge the appraisal: Provide additional comparable sales that support a higher value. The lender submits a “reconsideration of value” request.
- Walk away: If you have an appraisal contingency, you can exit without penalty.
In competitive markets, some buyers offer “appraisal gap coverage” — agreeing in advance to cover a gap up to a certain amount. This strengthens the offer but exposes you to paying more than the appraised value.
Preparing for the Appraisal
For sellers:
- Complete minor repairs before the appraisal visit
- Provide a list of recent improvements with costs
- Ensure clear access to all areas (attic, crawlspace, garage)
- Share comparable sales that support your asking price
For buyers:
- Include an appraisal contingency in your offer unless you’re prepared to cover any gap
- Research comparable sales independently so you know if the contract price is supported
- Don’t waive the appraisal to win a bidding war unless you have cash reserves
FHA Appraisal Differences
FHA appraisals are stricter than conventional. The appraiser evaluates health and safety issues in addition to value:
- Peeling paint (must be remediated in homes built before 1978)
- Missing handrails
- Broken windows
- Non-functional systems
- Standing water near the foundation
If the FHA appraiser flags safety issues, they must be fixed before the loan closes. This can delay or kill deals on homes that need work.
Appraisal vs. Inspection
These serve different purposes:
| Appraisal | Inspection | |
|---|---|---|
| Purpose | Determine value | Assess condition |
| Ordered by | Lender | Buyer |
| Required | Yes (for financed purchase) | No (but strongly recommended) |
| Cost | $400-$700 | $400-$600 |
| Protects | Lender | Buyer |
Both are worth having. Neither replaces the other.
Check current median home prices and market conditions on the HomeStats state pages to set realistic expectations before your appraisal.
For the complete guide to buying a home without overpaying, read The Resale Trap.