What an appraisal is for
The lender orders an independent appraisal to determine what the home is worth in today's market. The loan amount is based on the lower of the purchase price or the appraised value — so if the appraisal comes in low, the deal has to adjust.
The appraiser is a licensed third party. Neither the buyer nor the lender can choose the appraiser directly — they're assigned through an Appraisal Management Company (AMC) to keep the process independent.
What appraisers evaluate
Comparable sales ("comps")
The biggest driver of appraised value. Appraisers look at recent sales of similar homes in the same neighborhood — typically within the last 3–6 months, within 1 mile, and within 20% of the home's size. They adjust for differences (extra bedroom, larger lot, updated kitchen, etc.) to arrive at a market value estimate.
Square footage and layout
Above-grade finished square feet (the number on the listing) is what counts. Basements, attics, and unfinished spaces count separately.
Condition and quality
The appraiser walks through the home and rates its overall condition. Recent updates (kitchen, bath, roof, HVAC, windows) increase value. Deferred maintenance (peeling paint, broken fixtures, water stains) reduces it.
Site characteristics
Lot size, location, views, proximity to amenities, and any negative externalities (busy roads, commercial zoning next door).
Loan-program-specific requirements
FHA, VA, and USDA appraisals also include a habitability check. Common flags: leaking roof, missing handrails, peeling paint (lead concerns on pre-1978 homes), broken windows, exposed wiring, missing smoke detectors.
What borrowers can prepare
- Make the home presentable. Mow the lawn, clean up clutter, fix obvious cosmetic issues. The appraiser is human; first impressions affect the rating.
- Provide a list of upgrades. If the seller has made improvements (new roof, kitchen reno, etc.), document them with dates and amounts. Appraisers will use this.
- Have comps ready. If you (or your agent) found recent comparable sales, share them. The appraiser doesn't have to use them but might.
- Address program-specific issues upfront. If you're using FHA or VA and the home has a known issue (e.g., peeling paint), get it fixed before the appraisal — otherwise it'll come back as a required repair.
If the appraisal comes in low
Three options:
- Renegotiate with the seller. Most common. Sellers often agree to drop the price to the appraised value rather than restart the sale process.
- Bring extra cash. The lender will only fund up to the appraised value, but you can pay the difference out of pocket.
- Dispute the appraisal. Submit a Reconsideration of Value (ROV) with additional comps or facts the appraiser may have missed. Success rate is low but possible.
- Walk away. If your contract has an appraisal contingency, you can cancel and get your earnest money back.
What appraisers don't care about
- How much you paid for the home (just data point, not deciding factor)
- How emotionally attached you are to it
- Holiday decorations or how the home is staged
- Smells, noise, or short-term conditions
Concerned about appraisal risk on a property?
We'll model the scenario with you and discuss strategy if the appraisal comes in low. Reach out.