Understanding Home Appraisals [A Complete Guide]

Buying, refinancing, or tapping into your home equity? No matter your goal, understanding home appraisals is crucial. An appraisal plays a key role in determining your home’s market value, which impacts loan approvals, refinance terms, and even your sales price.

Moreover, different types of loans have specific appraisal standards that you must meet. Recently, market changes have also shifted how and when appraisals happen, making it even more important to stay informed.

Let’s walk through everything you need to know about home appraisals, from costs to tips for success.

What Is a Home Appraisal?

A home appraisal is an unbiased estimate of a property’s fair market value, conducted by a licensed professional appraiser. Lenders order appraisals to ensure the property is worth the loan amount requested.

Appraisers protect both borrowers and lenders by preventing overpayment or over-lending. They evaluate the home’s condition, location, and comparable sales data to reach a valuation.

Appraisal vs. Home Inspection

• Appraisal: Focuses on value for lending purposes.
• Home Inspection: Focuses on a home’s condition for the buyer’s awareness.

While both are important, they serve different roles in the homebuying journey.

Why Home Appraisals Matter

Home appraisals matter for several reasons, depending on your role in the transaction:

• For Buyers: Confirm that you’re not overpaying for a property.
• For Sellers: Set realistic expectations about listing prices.
• For Refinancers: Determine your home’s equity and loan-to-value ratio, which influences loan terms and cash-out options.
• For Lenders: Mitigate the risk of lending more than the property’s worth.

Without an accurate appraisal, any party in the deal faces heightened financial risks.

Different Types of Appraisals and Loan Programs

Appraisal requirements vary by loan type. Here’s what you should know.

Conventional Loan Appraisals

Conventional loans typically require a full interior and exterior appraisal. However, some borrowers qualify for a Property Inspection Waiver (PIW) if Fannie Mae or Freddie Mac’s automated underwriting system approves it. This waiver speeds up the process and saves money.

FHA Appraisals

FHA loans demand stricter property condition standards. Appraisers must be FHA-approved and will note any health, safety, or structural issues. Repairs often must be completed before the loan can close.

VA Appraisals

VA loans require a “Notice of Value” (NOV) after a VA appraisal. The appraiser focuses on Minimum Property Requirements (MPRs) to ensure the home is safe, structurally sound, and sanitary. Only VA-certified appraisers can complete this work, and the process sometimes takes longer than conventional appraisals.

Streamlined and Reduced Appraisals (Drive-By, No Appraisal)

Certain refinance programs offer appraisal flexibility:

• Drive-By Appraisals: Exterior-only inspections for limited-scope loans.
• FHA Streamline Refinance: Often no appraisal needed.
• VA IRRRL (Interest Rate Reduction Refinance Loan): Usually no appraisal required.

These options can mean faster processing times and lower costs.

How Much Does a Home Appraisal Cost?

On average, home appraisals cost between $500 and $900. However, several factors influence the final price:

• Larger properties
• Rural locations
• Custom or unique homes
• Multifamily properties
• Density of local appraisers

Generally, the borrower pays the appraisal fee out of pocket. Occasionally, lenders offer ways to offset the out of pocket expense by rolling the fee into the loan at closing on refinances.

Appraiser Shortages and Market Dynamics

During the 2020-2022 housing boom, demand for appraisals surged. However, the number of qualified appraisers did not keep pace. As a result:

• Turnaround times increased.
• Appraisal fees spiked.
• Rural markets faced significant delays.

Adding to the challenge, the appraiser workforce continues to age, with fewer new entrants into the profession. Technology solutions like desktop appraisals and Automated Valuation Models (AVMs) are expanding, but their use remains limited to certain loan programs and situations.

What Happens If My Home Appraisal Comes in Low?

A low appraisal can throw a wrench into any transaction. Here are your options:

Buyers

• Renegotiate: Ask the seller to lower the price.
• Request a Reconsideration: Present additional comparable sales to the appraiser.
• Bring Cash: Cover the difference between the appraised value and the contract price.

Refinancers

• Lower Loan Amount: Adjust the loan-to-value ratio to fit the appraisal.
• Second Appraisal: Rare, but sometimes allowed.
• Switch Loan Programs: Some loan types tolerate higher LTVs than others.
• Withdraw or Denied: If the low appraisal disallows you from paying off certain debts or removes the benefit of the loan, it could be best to withdraw the loan application.

Tips for a Smooth Appraisal Process

Help your appraisal go as smoothly as possible with these steps:

• Prepare Your Home: Clean thoroughly, complete minor repairs, and highlight recent upgrades.
• Respond Quickly: Schedule the appraisal promptly.
• Be Available: Answer any questions the appraiser may have.
• Showcase Improvements: Especially important for refinances—mention any neighborhood enhancements or home upgrades.

Final Thoughts

Home appraisals remain a critical part of the mortgage process. However, evolving market conditions and technology are adding more flexibility.

Whether you’re buying, refinancing, or simply exploring your options, ask your loan officer upfront about appraisal requirements. A clear understanding can help you avoid surprises and move through your home loan process with confidence.

FAQ Section

Can you waive an appraisal on a refinance?

• Yes, with programs like FHA Streamline or VA IRRRL, or with a PIW on conventional loans.

How long does a home appraisal take?

• Typically, 5 to 15 business days from order to report completion depending where the property is and how many appraisers there are nearby.

What if my home appraises for less than expected?

• You may renegotiate, contest the appraisal, or adjust your financing strategy. If the appraisal comes in too low, your loan could be denied.

How often do FHA/VA appraisals cause a loan to be denied?

Occasionally. Most issues are repair-related and can be corrected to satisfy the loan requirements. If the appraisal is “subject to” meaning subject to repairs and the borrower cannot complete the issues, then the loan will be denied. In most cases, the borrower completes the repairs and the appraiser conducts a reinspection to ensure everything was fixed to code.