Appraisal

What is an appraisal?

An appraisal is a formal, independent opinion of a property’s market value prepared by a licensed appraiser, required by virtually every mortgage lender before funding. The appraiser inspects the property, selects and adjusts comparable sales, and delivers a report (typically on the standardized URAR form) concluding a specific value. Lenders lend against the lower of purchase price or appraised value, making the appraisal a genuine gate in every financed transaction.

Residential appraisers rely primarily on the sales comparison approach, adjusting recent comps for differences, supplemented by the cost approach (land plus construction cost minus wear) and, for rentals, the income approach (value derived from rent). For investment properties, appraisers often also complete a rent schedule (form 1007) estimating market rent, which DSCR lenders use to qualify the loan.

When an appraisal comes in below the contract price, the buyer’s loan shrinks and someone must bridge the gap: the seller cuts the price, the buyer brings extra cash, they split the difference, or the deal dies (an appraisal contingency lets the buyer exit cleanly). Parties can challenge a low appraisal through a reconsideration of value with better comps, though reversals are uncommon. Appraisals typically cost $500 to $800, paid by the buyer, and remain valid to lenders for 90 to 180 days.

Frequently asked questions

What happens if the appraisal comes in low?

The lender bases the loan on the appraised value, not the contract price, so a low appraisal creates a cash gap. Your options: renegotiate the price down (sellers often concede, since the next financed buyer faces the same appraisal problem), bring extra cash to closing, split the difference, request a reconsideration of value with stronger comps, or walk away under your appraisal contingency if you kept one. Waiving that contingency means absorbing the gap or forfeiting your deposit.

How is an appraisal different from a home inspection?

They answer different questions for different audiences. The appraisal estimates value for the lender’s benefit, confirming the collateral supports the loan. The inspection catalogs the property’s physical condition, roof, systems, structure, for the buyer’s benefit. An appraiser notes obvious condition issues but does not test outlets or crawl the attic. Skipping the inspection to strengthen an offer means buying the property’s problems sight unseen.

Related tools and guides

• Mortgage Calculator