Buyer Education
Home Appraisals Explained
When you finance a home purchase, your lender requires an independent appraisal before they'll fund the loan. Here's exactly what that means for you, what to expect, and how to protect yourself if the numbers don't add up.
What Is a Home Appraisal?
A home appraisal is an unbiased, professional estimate of a property's fair market value. A licensed appraiser — hired by your lender but paid by you — visits the home, evaluates its condition, size, features, and location, then compares it to recent sales of similar homes nearby.
The appraiser's job is to protect the lender, not the buyer or seller. They're answering one question: is this home worth at least as much as the loan amount? Their findings are documented in a formal report delivered to your lender, typically within a few business days of the visit.
Why Lenders Require an Appraisal
Your lender is taking on significant financial risk. If you default on the loan, they need to know they can recover their money by selling the property. An appraisal is their safeguard.
Collateral Verification
The home secures the loan. The lender won't lend more than the home is worth because they'd be underwater immediately if you stopped paying.
Regulatory Requirement
Federal lending regulations require appraisals on most mortgage transactions. It's not a lender preference — it's the law for conventional, FHA, and VA loans.
Investor Protection
Most mortgages are sold to investors on the secondary market. Those investors require appraisals as proof that the collateral is sound before they'll purchase the loan.
Loan-to-Value Ratio
Your LTV ratio determines your interest rate and whether you need PMI. The appraisal sets the denominator in that calculation — so it directly affects your monthly payment.
What Happens During the Appraisal
Lender Orders the Appraisal
After your offer is accepted and you're under contract, your lender orders the appraisal through an Appraisal Management Company (AMC). You'll pay the appraisal fee — typically $400–$700 in Maryland — at closing or upfront.
Appraiser Schedules the Visit
The appraiser contacts the listing agent to schedule access. The visit itself usually takes 30–60 minutes. You don't need to be present, but your agent may attend.
Property Inspection
The appraiser walks through the home, noting square footage, bedroom and bathroom count, condition, upgrades, lot size, garage, and any visible defects. They photograph every room and the exterior.
Comparable Sales Analysis
Back at their desk, the appraiser pulls recent sales of similar homes — called comps — within roughly a half-mile and the past six months. They adjust for differences in size, condition, and features to arrive at a value.
Report Delivered to Lender
The completed appraisal report goes to your lender, typically within 3–7 business days of the visit. As the borrower, you have the right to receive a copy at least three days before closing.
What Happens If the Appraisal Comes In Low
A low appraisal — where the appraised value is less than the purchase price — is one of the most stressful moments in a transaction. You have four options:
Renegotiate the Price
Ask the seller to reduce the purchase price to the appraised value. In a buyer's market, sellers often agree rather than risk losing the deal.
Cover the Gap in Cash
You can pay the difference between the appraised value and the purchase price out of pocket. This is called an appraisal gap and is common in competitive markets.
Challenge the Appraisal
If you believe the appraiser missed relevant comps or made factual errors, your agent can submit a Reconsideration of Value (ROV) with supporting data. Lenders are required to review it.
Walk Away
If your contract includes an appraisal contingency — and it should — a low appraisal gives you the right to exit the contract and recover your earnest money deposit.
Common Appraisal Questions
Questions About the Appraisal Process?
We walk our buyers through every step of the transaction — including what to do if the appraisal doesn't go as planned.