What Is a Home Appraisal?
If your buyer is financing the purchase, an appraisal may be one of the steps between going under contract and closing. Here's what sellers should know about the process, what the appraiser is looking at, and what can happen if the appraised value doesn't match the contract price.
Your home is under contract.
The inspection may be finished.
Everything seems to be moving along.
Then you hear:
“The appraisal has been ordered.”
For sellers, this can be one of those parts of the transaction that feels a little mysterious.
Who orders it? What does the appraiser look at? Should you be there? And the big question:
What happens if the appraisal comes in low?
Let's walk through it.
Quick Takeaways
An appraisal is an independent opinion of a property's value.
A buyer's lender commonly requires an appraisal when the purchase is being financed.
An appraisal is different from a home inspection.
The appraiser considers the property along with relevant market data and comparable sales.
Sellers generally don't choose the appraiser or determine the appraised value.
The contract price and appraised value can be different.
A low appraisal does not automatically mean the seller must lower the sales price.
What happens after a low appraisal depends on the contract, financing, and decisions of the parties.
We'll help you understand your options if the appraisal creates an issue.
What Is an Appraisal?
A real estate appraisal is an independent professional opinion of a property's value.
When a buyer is obtaining a mortgage, the lender may require an appraisal as part of the loan process.
The lender wants to evaluate whether the property provides adequate collateral for the amount being financed.
Although the buyer may pay the appraisal fee, the appraisal is generally being performed for the lender's purposes.
Is an Appraisal the Same as a Home Inspection?
No.
These are two very different parts of a real estate transaction.
A home inspection focuses primarily on the condition of the property and its components.
An appraisal focuses primarily on value, although certain property conditions may also be relevant depending on the loan program and circumstances.
An inspector might spend considerable time evaluating the home's systems and components.
An appraiser is gathering information necessary to develop an opinion of the property's value.
Who Chooses the Appraiser?
When an appraisal is required for financing, the lender's appraisal process generally determines how the appraiser is selected.
The seller doesn't simply choose an appraiser who they believe will give the home the highest value.
Neither do we.
Appraiser independence is an important part of the lending process.
What Does the Appraiser Look At?
The appraiser may consider a number of factors, including characteristics of the property and relevant market information.
Depending on the property, those can include things such as:
Location
Living area
Lot size
Age
Overall condition
Bedrooms and bathrooms
Design and features
Improvements and updates
Comparable sales
Current market conditions
Other characteristics that may affect value
The appraiser then analyzes the available information to develop an opinion of value.
What Are Comparable Sales?
Comparable sales—or “comps”—are properties the appraiser considers relevant when evaluating the subject property.
The appraiser may make adjustments because no two homes are exactly alike.
One property might be larger.
Another might have a different lot.
One may have features the other doesn't.
The goal isn't necessarily to find an identical house. It's to analyze appropriate market data and account for meaningful differences.
Should I Prepare My Home for the Appraisal?
You don't need to completely redo your home because an appraiser is coming.
But we do recommend having the property reasonably clean and accessible.
Make sure the appraiser can access the areas they need to see.
If you've made significant improvements or updates to the property, let us know.
Information about meaningful improvements may be helpful, particularly when they aren't immediately obvious.
Should I Be Home During the Appraisal?
Usually, you don't need to follow the appraiser through the house or explain why you believe every feature adds a certain amount of value.
In many cases, it's easier to give the appraiser room to do their job.
We'll coordinate access and provide appropriate property information when helpful.
Can We Tell the Appraiser What the Home Is Worth?
No.
We don't tell an appraiser what value they need to reach.
However, there is a difference between trying to influence an appraiser improperly and providing relevant factual information.
When appropriate, useful information may include details about the property, significant improvements, or relevant comparable sales.
The appraiser ultimately develops their own independent opinion of value.
What Happens If the Home Appraises at the Contract Price or Higher?
Generally, that's good news for purposes of this step in the buyer's financing.
If the appraisal satisfies the lender's requirements and no other appraisal-related issue arises, the transaction can continue moving forward.
One important thing for sellers to understand:
An appraisal above the contract price does not mean the buyer now owes you more money.
You already agreed to a purchase price in the contract.
The appraisal doesn't rewrite that price simply because the opinion of value is higher.
What Happens If the Appraisal Comes in Low?
This is the part sellers usually worry about.
Suppose you're under contract for $400,000, but the appraisal comes back at $390,000.
That doesn't automatically mean:
“Now I have to sell the house for $390,000.”
What happens next depends on the purchase agreement, the buyer's financing, any applicable appraisal or financing provisions, and what the parties are willing or required to do.
Possible outcomes may include, depending on the circumstances:
The buyer bringing additional funds
The parties negotiating the sales price
The parties finding another negotiated solution
An appraisal review or reconsideration process when appropriate
The transaction proceeding under applicable contract terms
The contract ending if the buyer has a contractual right to terminate and the issue isn't resolved
There isn't one answer that applies to every transaction.
Do I Have to Lower My Price If the Appraisal Is Low?
Not automatically.
This is important.
A low appraisal doesn't simply change the purchase price written in your contract.
Whether you have any obligation to adjust the price depends on the contract and circumstances.
If an appraisal comes in below the contract price, we'll review the situation with you and discuss your options before you make any decisions.
Can the Buyer Just Pay the Difference?
Potentially, depending on the buyer's finances, loan requirements, and contract.
For example, if there's a difference between the appraised value and contract price, a buyer might decide they are willing and able to bring additional funds to closing.
But we should never assume that will happen.
The buyer's ability or obligation to do so depends on their particular situation and the agreement.
Can an Appraisal Be Challenged?
There may be circumstances in which an appraisal can be reviewed or a reconsideration of value can be requested through the lender's process.
That doesn't mean we simply say:
“We don't like the number. Change it.”
There generally needs to be relevant information supporting the request—for example, factual errors or potentially relevant market data that warrants consideration.
If we believe there may be information worth bringing to the appropriate party's attention, we'll work through the proper process.
There is no guarantee that the appraised value will change.
What About FHA or VA Appraisals?
Different loan programs can have different appraisal requirements.
With certain government-backed loans, the appraisal process may involve property requirements in addition to valuation.
If an appraiser identifies a condition that must be addressed for the loan to proceed, we'll discuss what has been reported and what options may be available.
We don't assume that every loan or appraisal will be handled exactly the same way.
Does a Low Appraisal Mean We Priced the Home Wrong?
Not necessarily.
An appraisal is one professional opinion of value prepared for a particular transaction and purpose.
Market value isn't determined by one number alone.
The contract price reflects what a buyer and seller agreed upon, while the appraisal is the appraiser's independent opinion based on their analysis.
Sometimes those numbers match.
Sometimes they don't.
If there's a significant difference, we'll look closely at the information available before deciding how to proceed.
What Should I Do While We're Waiting for the Appraisal?
Usually, there's nothing dramatic you need to do.
Keep the home maintained, continue preparing for your move, and let us handle the transaction-related communication.
And try not to spend the entire time worrying about a number that hasn't arrived yet.
If the appraisal creates an issue that requires your attention, we'll talk with you about it.
The Bottom Line
If you only remember one thing from this article, let it be this:
An appraisal is an opinion of value—it doesn't automatically rewrite your contract.
If the appraisal supports the transaction, we keep moving forward.
If it creates a problem, we'll review what happened, look at the terms of your agreement, communicate with the appropriate parties, and help you understand the options available before you decide what you want to do.
From Dana & John
We know waiting for an appraisal can make sellers nervous, especially when you've already negotiated a price you're happy with.
Most of the time, there isn't anything you need to do except let the appraiser do their job and allow the process to play out.
If the appraisal does create an issue, don't immediately assume you have to lower your price or that the sale is falling apart. We'll look at the appraisal situation, your contract, and the buyer's financing and talk through the options with you.
Then we'll work with you on the next step.
Continued Learning
Now that your home is under contract, these guides may also help:
→ What Happens After My Home Goes Under Contract?
→ What Repairs Can a Buyer Ask For?
→ What Happens on Closing Day?
→ What Should I Do Before Moving Out?
→ How Is the Market Value of My Home Determined?
Have Questions?
If you're preparing to sell and have questions about appraisals or what can happen if an appraisal doesn't match the contract price, we'd be happy to explain how the process generally works and what sellers can expect.
Dana & John Martin – Team Martin
Waters Edge Realty
318-504-9925 | 504-450-2714
ALGulfCoastAgents@gmail.com
