Home Appraisal Guide: What It Is, How It Works, and What to Do If It Comes in Low
A home appraisal is one of the most important — and most misunderstood — parts of the mortgage process. It's required by virtually every lender on every purchase and refinance transaction, and a "low appraisal" can put a deal in jeopardy. Understanding how appraisals work, what appraisers look for, and what your options are if the value comes in short gives you a significant advantage as a buyer.
What Is a Home Appraisal?
A home appraisal is an independent, professional assessment of a property's current market value, conducted by a licensed or certified appraiser. Your mortgage lender orders the appraisal — you pay for it — to confirm that the home's value adequately supports the loan amount. This protects the lender: if they lend $380,000 on a home worth $350,000 and you later default, they'd be left with inadequate collateral.
Appraisals are distinct from home inspections. A home inspection assesses the condition of the home's systems and structure. An appraisal determines market value. Most purchase transactions require both.
How Appraisers Determine Value
Appraisers primarily use the Sales Comparison Approach for residential properties: finding recently sold homes similar to yours (called "comparables" or "comps") and adjusting for differences to arrive at an estimated value.
Key factors appraisers consider:
- Comparable sales: Recent sales (within 6–12 months) of similar homes within approximately 1 mile, adjusted for differences in size, condition, and features
- Location: Neighborhood quality, school district, proximity to amenities and negatives (highways, commercial uses)
- Size: Gross living area (above-grade square footage), lot size, number of bedrooms and bathrooms
- Condition: Overall quality and condition of the home and its components
- Amenities: Garage, pool, finished basement, updated kitchen/baths, etc.
- Property characteristics: Construction quality, style, age, and functional utility
Appraisers also consider the Cost Approach (what it would cost to build the home new, minus depreciation) and sometimes the Income Approach (potential rental income) — but for typical residential purchases, the Sales Comparison Approach carries the most weight.
The Appraisal Process: What to Expect
- Your lender orders the appraisal through an Appraisal Management Company (AMC)
- A licensed appraiser is assigned and contacts you or the seller to schedule
- The appraiser visits the property for 20–60 minutes, measuring rooms, photographing all areas, noting condition and features
- The appraiser researches comparable sales and writes the formal appraisal report
- The report is submitted to your lender — typically within 5–10 business days of the visit
- Your lender reviews the appraisal and may order a review or field review if there are concerns
How to Prepare Your Home for an Appraisal (Sellers)
While you can't manufacture value, presentation affects perceived condition:
- Complete any deferred maintenance (leaky faucets, broken fixtures, peeling paint)
- Ensure all areas are accessible, including attic, crawl space, and basement
- Prepare a list of recent improvements with costs and dates
- Compile relevant information: HOA documents, permits for additions, utility bills
- Suggest comparable sales that support your value to the appraiser (they're not obligated to use them, but may review them)
Low Appraisal: Your Options as a Buyer
A low appraisal — where the appraised value comes in below the purchase price — is a common and potentially deal-threatening situation. Here's exactly what you can do:
Requesting a Reconsideration of Value (ROV)
If you believe the appraisal is inaccurate — specifically that the appraiser missed better comparable sales — you can submit a Reconsideration of Value request through your lender. To be successful, your ROV needs:
- Specific comparable sales the appraiser didn't use, with clear similarity to your property
- Factual errors in the appraisal (wrong square footage, missing improvements)
- Evidence that adjustments for differences were applied inconsistently
Simply disagreeing with the value is not a basis for ROV. You need documented evidence of comparable sales that support a higher value.
Appraisals for Refinances
When refinancing, the appraisal determines your LTV ratio — which affects your rate, whether PMI applies, and how much you can borrow in a cash-out refinance. If you're refinancing to eliminate PMI, the appraisal must support at least 20% equity. If you're doing a cash-out refinance, the appraised value determines your maximum loan amount. See our When to Refinance guide for the full refinancing decision framework.