Understanding Home Appraisals: What Buyers and Sellers Need to Know

The Appraisal: A Critical Step Most People Don't Understand

You've negotiated a purchase price. The inspection went well. Now the lender orders an appraisal—and everything hangs in the balance.

What Is an Appraisal?

An appraisal is an independent professional's opinion of a property's market value. Lenders require them because they're lending against the home as collateral.

How Appraisers Determine Value

Appraisers use three main methods:

1. Comparable Sales Approach: What have similar homes sold for recently?
2. Cost Approach: What would it cost to rebuild this home?
3. Income Approach: What rent could this property generate? (mainly for investment properties)

For most residential purchases, comparable sales carry the most weight.

What Affects Appraisal Value

• Recent sales of similar properties within 1 mile
• Square footage, bedrooms, bathrooms
• Age and condition of the home
• Updates and renovations
• Lot size and location
• Market conditions at the time

When the Appraisal Comes in Low

If the appraisal is lower than the purchase price, you have options:

• Renegotiate the price to match the appraised value
• Buyer pays the difference in cash
• Split the difference between buyer and seller
• Challenge the appraisal with additional comparable sales
• Walk away if your contract allows

How to Prepare for a Strong Appraisal

Sellers: Complete minor repairs, ensure the home is clean and accessible, and provide a list of recent improvements.

Buyers: Have your agent provide the appraiser with relevant comparable sales that support the purchase price.

Questions about appraisals in your transaction? I'm here to help.