How a Home Appraisal Works

Real estate appraisers consider many details to determine a home's value. The appraiser will do market research and usually visit the home to examine the property.

Barbara MarquandMay 20, 2020
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When you apply for a home loan, a lender will usually require an appraisal of the property, whether you're buying a house or refinancing a mortgage.

What is a home appraisal?

A home appraisal is a licensed or certified appraiser's opinion of a home's value. The appraisal is based on research of recent sales of comparable homes in the area, an analysis of the property and the appraiser's judgment.

The mortgage lender requires an appraisal to help gauge risk of making a loan. The property serves as collateral in case the borrower defaults, so the lender wants to make sure the loan isn't too big, compared with the property's value.

Nerd tip: Normally, an appraiser views the property inside and out. But due to the coronavirus pandemic, lenders are not requiring appraisers to step inside homes for many purchase and refinance mortgages. Instead, appraisers may rely on market research and other data, photos and exterior views. Learn more about buying and selling a home during COVID-19.

Home inspection vs. appraisal

Both an appraisal and a home inspection are important in the homebuying process, but they serve different purposes.

A home inspection is for evaluating a home's condition. The inspector walks through and checks the structure from top to bottom, including the walls, ceilings, floors, windows and doors, as well as the mechanical and electrical systems, appliances and plumbing. After looking at everything the inspector provides an objective report, including repair recommendations.

An appraisal is an assessment of home value. The appraiser considers the home's condition as part of the analysis of how much the property is worth, as well as other factors, such as the local housing market. The appraiser doesn't make recommendations for repairs.

Home appraisal cost

A home appraisal typically costs about $300 to $400 — with a national average of $336, according to HomeAdvisor. Fees vary by the type of loan. FHA appraisal fees vary by location and size of the home. The VA loan program has a set schedule for VA appraisal fees.

Although the lender orders the appraisal, the mortgage applicant typically pays for it as part of the mortgage's closing costs.

Home appraisal process

An appraisal is usually required for a purchase or refinance mortgage, but some government refinance programs generally don't require appraisals, including FHA streamline, VA interest rate reduction refinance loan (VA IRRRL) and USDA streamline loans.

When you're buying a home, the lender will order the appraisal after you've made an offer and signed a purchase agreement. When refinancing a mortgage, the lender will order the appraisal after you apply.

You can ask to accompany the appraiser on the walk-through of the property as long as it's OK with the lender, according to the Appraisal Institute, a professional association of real estate appraisers.

What do home appraisers look for?

Real estate appraisers consider many details to determine a home's value. The appraiser will do market research and usually visit the home to examine the property. Here are some of the factors they take into account:

Home appraisal checklist

  • Neighborhood characteristics.

  • Local housing market trends.

  • Sale prices of comparable homes recently sold in the area.

  • Lot and home size.

  • Age and design of the home.

  • Types of interior and exterior materials.

  • Condition of the home.

  • Appliances.

  • Amenities, such as fireplaces or decks.

  • Home improvements and renovations.

Getting a home appraisal report

As the mortgage borrower, you have a right to a free copy of the appraisal report at least three days before the loan closes. It's a good idea to read the report to check for accuracy.

Let the lender know if you find errors and think the estimated value is wrong. Any pertinent information you provide could lead the appraiser to reevaluate. You may also ask the lender for a second appraisal. Keep in mind you'll have to pay for the appraisal if the request is granted.

If the appraised value is less than expected on a home you want to buy, you may be able to use that information to negotiate a lower price with the seller.

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