How Home Appraisals Work: A Beginners Guide - Mares Mortgage

How Home Appraisals Work: A Beginners Guide

Shaking hands in front of a house
Even if a buyer and seller agree on the price of a home, it’s not final until a home appraisal happens—unless it’s a cash purchase. Home appraisers an impartial third parties, and their job is to confirm a deal by evaluating the home’s value. Lenders rely on these professionals to determine whether or not the home is equal to the value of the price agreed upon by the buyer and seller. Are you in the process of buying or refinancing a home? Get the help you need from the loan brothers at Mares Mortgage!

What Are Home Appraisals?

Home appraisals are an analysis of a property to determine its value. During the sale of a home, the lender will hire a certified home appraiser to ensure the value of a property. It’s important for lenders to get an accurate appraisal of a home because, when providing a mortgage loan, they want to ensure that it isn’t being sold for too high of a value, Home appraisers will typically evaluate the entire property (exterior and interior), conduct research, and address special requests from the lender. The home buyer usually pays the appraisal cost, which costs a few hundred dollars. Related: House Buying Checklist

The Home Appraisal Process

Home appraisals usually take place very soon after the buyer and seller agree on a price; this allows the appraiser plenty of time to schedule a visit and create their report. Typically, the lender will select the appraiser, who will then get in contact with the seller to schedule a date and time for the appraisal. Here’s what the process usually entails:


Home appraisers will go through the interior and exterior of a house to ensure that it is in good structural condition, confirm that there are not any safety issues, note the number of rooms, and see if there have been any upgrades since the last time the house was bought or sold. The appraiser will usually take photos all over the home during their walkthrough. While the buyer can request to be present at the time of appraisal, it’s uncommon. Appraisals for government-backed loans have different requirements than traditional loans. Appraisers who are creating a report for an FHA loan must test the appliances and utilities to ensure they are working correctly; VA loans have similar appraisal requirements.


Appraisers will also compare the prices of similar homes that were recently sold to help determine an accurate price for the property they are appraising. They do this by selecting homes with similar characteristics and in the same area and comparing them using government records and information from real estate databases.


There are two ways that the appraiser can decide on the home’s value: the sales comparison approach (which is typically used) or the cost-based approach. The sales comparison approach uses the above research to determine a fair price, while the cost-based approach uses an estimate of what it would cost to build the home today and takes into account the land value of the property.

Home Appraisals vs. Inspections

Checklist: Good, neutral, or poor Appraisals and home inspections sometimes get confused as the same thing, but they are two completely different aspects of a real estate transaction. Home appraisals are for the lender’s benefit, while home inspections are for the buyer’s benefit and determine what home repairs are needed before making a purchase. Related: Signs You’re Ready to Buy a Home During the loan closing process, the buyer will hire a home inspector to conduct a review of every part of the home, create a detailed report, and recommend what should get fixed or updated prior to the purchase. After a home inspection, the buyer and their real estate agent will bring up concerns from the inspection to the seller. Usually, this is either to get the seller to pay for and make repairs or to renegotiate the price depending on the inspection’s results. The lender is not involved in the home inspection process unless the buyer chooses to cancel the agreement because of the finding from the inspection.

Understanding Your Home Appraisal Report

Once you receive your appraisal report, the first thing you’ll probably do is look at the final value. If it ends up being very close to the agreed-upon sale price, there shouldn’t be any loan complications. Here’s what your report will include:
  • The market value and its effective date
  • Property characteristics, like its condition and features
  • Information about the market, home’s location, and the data to back up the appraisal’s determined value
  • Notes from the lender

Challenging a Home Appraisal

If you receive an appraisal that you think is incorrect, you can get in touch with your lender to try and get a revised appraisal. Some issues you can look for are:
  • The wrong number of rooms, or the failure to account for certain parts of the home
  • An incorrect square footage listing
  • Comparable sales that weren’t recent or near the home’s location
  • Major upgrades that weren’t listed
Getting a second appraisal can’t get used as proof by the lender, but it can help your case against the first appraisal.

How Home Appraisals Help Buyers

“Open House” sign While appraisals are designed for the use of a mortgage lender, they are also beneficial to the buyer. Home appraisals can:
  • Confirm the value of the home. Buyers can get peace of mind knowing that they are getting a fair price for their new home.
  • Give a buyer bargaining power. Low appraisals slow down the loan process. If the appraisal comes back low, it gives the buyer a chance to renegotiate the sale price. Buyers also get the chance to walk away from the purchase or pay the difference to the seller if they really want the property, and negotiations didn’t work.
  • Increase home equity. When appraisals come back high, it gives the buyer more equity in the home, giving them a huge advantage when it comes to getting things like a home equity loan.
Related: Benefits of Buying a Home Are you ready to start the process of buying your dream home? Get in touch with Mares Mortgage today!
Share the Post:

Related Posts