How Home Appraisals Work — and What the Final Value Means

It’s not up to us to determine a home’s worth — that’s what a licensed appraiser does. A home appraisal is an independent evaluation that provides an unbiased estimate of a property’s fair market value. Conducted by a neutral third party, an appraisal is required for most real estate transactions that involve a mortgage.

And since the majority of buyers rely on financing, appraisals are a standard part of the homebuying process. According to the National Association of Realtors (NAR), about 81% of primary residence purchases involve a mortgage, along with 43% of vacation home purchases.

With so many transactions depending on lender approval, appraisals play a critical role in keeping the process moving. So what is a home appraisal, and how does it work?

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What is a home appraisal?

A home appraisal is a professional estimate of a property’s value conducted by a licensed appraiser. It’s a key step in nearly every real estate transaction and serves an important purpose for buyers, sellers and lenders alike.

For sellers, the appraisal provides a realistic picture of what their home could sell for in the current market. For buyers, it helps confirm whether the price they’ve agreed to pay matches the home’s true worth.

Mortgage lenders typically require an appraisal before approving a loan. By verifying the home’s value, lenders ensure the property is adequate collateral for the amount being borrowed. This protects the bank from lending more than the home is worth and gives buyers peace of mind that they aren’t overpaying.

How do home appraisals work?

The mortgage lender orders the appraisal, while the borrower is typically responsible for paying the fee. The cost depends on the appraiser, the property’s size and complexity and the location, but most appraisals fall in the $325 to $1,000 range.

At its core, the purpose of an appraisal is to determine a home’s true market value. The negotiated price between a buyer and seller reflects what the seller hopes the property is worth — but that doesn’t always match reality.

An appraisal helps bridge that gap with an independent estimate backed by data and professional evaluation. In most cases, the buyer’s mortgage lender initiates the process to ensure the home is worth enough to serve as collateral for the loan.

Lenders may also use alternatives like virtual or "desktop" appraisals, particularly for refinances or when a homeowner is applying for a home equity loan or line of credit (HELOC).

These methods are legitimate and commonly used. For purchase transactions however, a full in-person appraisal remains the standard because it captures both the property’s condition and local market trends.

How a home appraisal differs from a home inspection

While home appraisals and inspections happen during the homebuying process, they aren’t the same.

A home appraisal assesses the home to determine its worth. This dollar amount gives sellers an idea of what they might earn in a sale. It’s also helpful for buyers to know if a specific home is priced appropriately.

Meanwhile, an inspection is a check of the property's condition. Generally, it covers flooring, doors, roofs, the appliances and more.

Home inspections aren't required but are highly recommended for buyers before signing a contract. That way if there are any major concerns, they can be recorded in writing. This process helps buyers secure a property with full knowledge of its condition.

While it’s important to have both an inspection and an appraisal when buying a home, note that each serves a different purpose.

What happens during a home appraisal?

Once a lender requests an appraisal, a property appraiser will make an appointment to visit the home.

During the visit, their basic check will include:

• Evaluating the home’s condition, size and layout.
• Reviewing both inside and outside the home.
• Looking at other key features in and around the home.

The appraisal could take as little as 30 minutes or as long as a few hours. Each appraiser is different and obviously no two properties are the same, so you can expect some variation.

The appraiser will then compare the home to similar properties in the area, especially those recently sold. These comparisons or “comps,” help appraisers determine the home's fair market value. To figure this out, an appraiser can browse recent sales data, multiple listing services (MLS) and county records.

The appraiser gathers all of this information and puts it into a report, which is later provided to the lender. Borrowers can request a copy and can review it before closing day. If there are issues with the final appraisal, the prospective buyer is allowed to ask the agent about them before the sale closes.

What does the final value mean?

The final appraised value gives both seller and buyer a solid idea of a home’s worth. If you're a buyer and the appraisal is lower than your pre-approved loan amount, you’ll know you can afford your home payments. If the amount is higher, you'll need to make some adjustments.

If the final appraised amount is lower than the negotiated price between you and the seller, you can adjust the contract to the new price, as long as there is an appraisal contingency in place. But if you don’t have this contingency, you might end up paying more for a home than it’s worth.

Keep in mind that the appraiser works on behalf of the lender, not the buyer or seller. This means the appraisal should be an unbiased evaluation of the home and shouldn’t favor either side of the negotiation table.

The bottom line on home appraisals

A home appraisal is a key step in most real estate transactions, ensuring a property’s value is supported by data and professional judgment.

For buyers, sellers and lenders alike, it provides an unbiased safeguard in the process. Understanding how appraisals work — and what they can and cannot do — helps set realistic expectations and keeps your transaction on track.

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