Whether you’re buying a home using a mortgage, refinancing your existing mortgage, or selling your home to anyone other than an all-cash buyer, a home appraisal is a key component of the transaction. If you’re a buyer, owner, or seller, you’ll want to understand how the appraisal process works and how an appraiser determines a home’s value.

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• The Basics

  • An appraisal is an unbiased professional opinion of the value of a home and is used whenever a mortgage is involved in the buying, refinancing, or selling of that property.

  • A qualified appraiser creates a report based on a visual inspection, using recent sales of similar properties, current market trends, and aspects of the home (e.g., amenities, floor plan, square footage) to determine the property’s appraisal value.

  • The borrower usually pays the appraisal fee, which can be several hundred dollars.

  • When the appraisal value is lower than expected, the transaction can be delayed or even canceled.

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• The Appraisal Process and How Values Are Determined​

  • Because the appraisal primarily protects the lender's interests, the lender will usually order the appraisal. An appraisal costs several hundred dollars and, generally, the borrower pays this fee.

  • According to the Appraisal Institute, an association of professional real estate appraisers, a qualified appraiser should be licensed or certified—as required in all 50 states—and be familiar with the local area. Per federal regulations, the appraiser must be impartial and have no direct or indirect interest in the transaction.

  • A property's appraisal value is influenced by recent sales of similar properties and by current market trends. The home's amenities, the number of bedrooms and bathrooms, floor plan functionality, and square footage are also key factors in assessing the home's value. The appraiser must do a complete visual inspection of the interior and exterior and note any conditions that adversely affect the property's value, such as needed repairs.

  • Typically, appraisers use Fannie Mae's Uniform Residential Appraisal Report for single-family homes. The report asks the appraiser to describe the interior and exterior of the property, the neighborhood, and nearby comparable sales. The appraiser then provides an analysis and conclusions about the property's value based on their observations.

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• The Appraisal Report Must Include:

  • A street map showing the appraised property and comparable sales used

  • An exterior building sketch

  • An explanation of how the square footage was calculated

  • Photographs of the home’s front, back, and street scene

  • Front exterior photographs of each comparable property used

  • Other pertinent information—such as market sales data, public land records, and public tax records—that the appraiser requires to determine the property's fair market value