How Home Appraisals Work — What Buyers and Sellers Need to Know

According to Kiplinger, a home appraisal is one of the most important steps in any real estate transaction — whether you're buying, selling, or refinancing. It ensures the property's price reflects its true market value and gives all parties involved confidence in the deal. And while the process may seem technical, understanding it can help you approach your transaction with clarity and even a strategic edge.

In our experience working with clients throughout the buying and selling process, a well-handled appraisal can be the key to a smooth closing.

Here's what you should know — and how to prepare.

What Is a Home Appraisal and Why Does It Matter?

A home appraisal is an independent, third-party opinion of a property's fair market value, conducted by a licensed professional. Mortgage lenders require it to confirm that the home's value supports the amount being borrowed.

But the appraisal isn't just for the bank. It also protects buyers from overpaying and helps sellers justify their asking price. It brings objectivity to what can often be an emotional process.

The appraiser looks at a wide range of factors to determine value, including:

• Square footage and layout

• Overall condition of the property

• Recent upgrades or renovations

• Location and neighborhood features

• Comparable sales (or "comps") nearby

  
  

The goal is to answer one key question: What is this home truly worth in today's market?

Who Orders and Pays for the Appraisal?

In most mortgage-backed transactions, the lender orders the appraisal — but the buyer typically pays for it.

Appraisals usually cost between $325 and $1,000, depending on the size and complexity of the home, as well as its location.

If you're buying with cash, the appraisal may not be required, but it's still a smart move for peace of mind. And if you're refinancing, your lender will almost always require a new appraisal to ensure your home's current value supports the new loan terms.

What Does the Appraisal Process Look Like?

Appraisals follow a structured process, but each one is tailored to the specific property.

1. On-Site Visit

The appraiser visits the property — either in person or virtually — to inspect the interior and exterior. They take measurements, assess the overall condition, note materials and finishes, and photograph key features.

2. Neighborhood and Market Research

Next, the appraiser evaluates the surrounding area. Proximity to schools, public transport, amenities, and local market conditions all impact the value.

3. Comparative Market Analysis

One of the most important steps is identifying comparable properties (comps) — recently sold homes that are similar in size, style, condition, and location. Adjustments are made for differences between the comps and the subject property.

4. Valuation and Report

Using all of this data, the appraiser completes a detailed report. This includes:

• Estimated fair market value

• Description of the property and condition

• Photos

• Maps and sketches

• List of comps and how they were used

This report is submitted to the lender and is often shared with the buyer.

What If the Appraisal Comes In Low?

It happens. And while a low appraisal might feel like a setback, there are several ways to move forward.

If the appraised value is lower than the purchase price, lenders will typically only finance up to that lower amount. This creates a gap that the buyer may need to cover with additional funds — or renegotiate the price.

Here are the most common options:

• Renegotiate the purchase price. Often, the seller will be willing to adjust the price rather than risk losing the sale.

• Dispute the appraisal. If there are errors or stronger comps available, the appraisal can sometimes be challenged.

• Make up the difference. Some buyers choose to cover the gap with cash — especially in a competitive market.

• Walk away. If there's an appraisal contingency in place, buyers may be able to exit the contract and get their earnest money back.

  
  

With the right guidance and preparation, a low appraisal doesn't have to derail your transaction.

How to Prepare for a Successful Appraisal

While the appraiser is independent, there are things homeowners and agents can do to help ensure the value reflects the property's true worth.

Here's what we typically recommend:

✅ Highlight Upgrades

Provide a list of recent renovations or improvements — new roof, updated kitchen, energy-efficient systems, etc. Include dates, receipts, and permits if available.

✅ Clean and Declutter

Presentation matters. A clean, organized home allows the appraiser to focus on the features, not the mess.

✅ Boost Curb Appeal

Small touches — mowing the lawn, trimming bushes, fresh paint — can improve first impressions and suggest the home is well cared for.

✅ Choose Strong Comps

Before the appraisal, we usually prepare a list of comparable sales that best reflect the property's value. This can help guide the appraiser's analysis, especially in markets with a lot of price variability.

✅ Repair Small Issues

Fix minor maintenance problems — loose doorknobs, leaky faucets, cracked tiles. These may seem insignificant but can subtly influence perceived value.

Why Appraisals Are Good for Everyone Involved

At the end of the day, a well-executed appraisal protects all parties:

• Buyers avoid overpaying.

• Sellers get a reality check on pricing.

• Lenders know the loan is based on actual value, not emotional pricing.

  
  

As agents, we see the appraisal process as a key opportunity — not a hurdle. With the right preparation, it's often a smooth, even empowering step in the transaction.

Whether you're preparing to list your home, submit an offer, or refinance, understanding how appraisals work gives you a real advantage. If you need guidance on pricing, preparing for an appraisal, or navigating a low valuation, we're here to help you make the process clear and successful from start to finish. Get in touch with us today — and let’s make your next move a confident one.

Source: kiplinger.com