What Appraisal Means and What Know Before Buying or Selling Real Estate

When you decide to dip your toe into the real estate market, you begin to hear terms that can be confusing if you’ve never bought or sold a home or other property. One of those terms is appraisal. Any property purchase, refinance, or sale must be accompanied by a current, valid appraisal. What does that mean, and who is responsible for getting it done? We’ve gathered the information you need to know about appraisals and put it together for you here, so maybe when it’s time for an appraisal, it will be less confusing for you.

What Is an Appraisal?

In simple terms, an appraisal is an assessment of the value of a property that you are buying, selling, or refinancing. Most of the time, we hear the term in association with real estate, but any valuable property can be appraised. For example, you can get an appraisal of your grandmother’s jewelry before selling it or dividing it as part of her estate. The Appraisal Institute, the largest professional association for real estate appraisers in the United States, defines an appraisal as a credible opinion of value based on market analysis and a physical inspection of the property.

Who Performs an Appraisal?

An appraisal can’t be done by just anyone. Lenders want professional appraisals completed by someone licensed to do the work. These licensed appraisers know what to assess to determine value as well as how to compile the reports for the lenders so that the lender can determine whether the property is a sound investment for them to make. Standards for appraiser licensing and certification are set nationally by the Appraisal Qualifications Board (AQB), a division of the Appraisal Foundation, which was authorized by Congress. Lenders regulated by the FDIC, the Federal Reserve, or other federal agencies are required to use appraisers who meet these standards for any transaction involving a federally related mortgage.

What Is the Point of an Appraisal?

An appraisal lets a mortgage lender know whether the property is worth the amount of money a buyer is asking to borrow. If the property doesn’t appraise for the amount the buyer is requesting, either the buyer will need to make a lower offer or put some of their own cash toward the purchase because a lender won’t loan more money than the property is worth. Buyers also have the option of ending the deal without losing their earnest money. This protection is commonly referred to as an appraisal contingency, and the Consumer Financial Protection Bureau (CFPB) recommends that buyers understand their rights related to appraisal outcomes before signing a purchase agreement. Lenders such as Chase, Wells Fargo, and SoFi all factor the loan-to-value (LTV) ratio — derived directly from the appraised value — into their decisions about whether to approve a mortgage and at what interest rate.

What Is Included in an Appraisal?

An appraisal is, at its core, a thorough inspection of the property you propose to purchase. The appraiser will look at everything that can change the property’s value. The first consideration is the condition of the property itself. A property with little to no damage will appraise higher than a property that needs minor repairs, and minor repairs cause less detriment to value than major repair needs.

Another consideration is upgrades or additions such as garages, fireplaces, modern flooring, energy-efficient windows, and energy-efficient heating and cooling systems. What other amenities are included? Is there a swimming pool, a deck, or appliances included? Those change the value of the property, too. According to Remodeling Magazine’s Cost vs. Value report, certain improvements like garage door replacements and minor kitchen remodels consistently return more than 80% of their cost in added appraised value.

The size of the property, both of the structure and of the land, will add or detract from the value of the real estate. Of course, location also plays a role in the assessment of value. Whether the home is in the country, suburbs, or city affects the appraised value of the property too. Appraisers will consider the recent market activity in the same area for properties of the same size and condition. These comparable sales — known in the industry as “comps” — are a foundational element of the sales comparison approach, one of three recognized valuation methods described by the National Association of Realtors (NAR). The other two methods are the cost approach and the income approach, the latter being used most often for investment or rental properties.

Who Asks for the Appraisal?

The responsibility for requesting the appraisal depends on which side of the real estate deal you are on. If you’re the seller, the person buying your home will have a lender requesting the appraisal. If you’re the buyer, then your lender will request an appraisal. For a refinancing deal, your lender will be the one who requests the appraisal. Regardless of who orders the appraisal, the buyer is usually responsible for paying for the appraisal as part of closing costs for completing the loan process. The CFPB notes that many lenders now use Appraisal Management Companies (AMCs) as intermediaries to select and assign independent appraisers, a practice that became more common after the Home Valuation Code of Conduct (HVCC) was introduced to reduce conflicts of interest in the appraisal process. Fannie Mae and Freddie Mac, the two government-sponsored enterprises that purchase a large share of U.S. mortgages, require lender compliance with these independence standards.

Who Gets a Copy of the Appraisal?

When the appraisal is completed, the lender will receive a copy of the finished appraisal report that includes their analysis of all the information they gathered during the appraisal and their professional opinion of the property’s value. If you are buying or refinancing, your lender will typically provide you with a copy of the appraisal. Under the Equal Credit Opportunity Act (ECOA), lenders are required to provide you with a copy of your appraisal at least three business days before your loan closes, at no additional charge. Usually, the seller doesn’t get a copy of the appraisal unless they specifically request it, and the buyer is willing to share it. The appraiser can’t speak to you directly about your appraisal. They’re only allowed to speak to the lender who hired them. If you believe an appraisal is inaccurate, you have the right to request a Reconsideration of Value (ROV), a process that Fannie Mae updated its guidelines on as recently as 2024 to better protect borrowers from appraisal bias.

What Can You Do to Prepare for an Appraisal?

If you are selling your home and want it to appraise well, there are some things you can do ahead of time to help with the valuation. Appraisers look for both major and minor repairs that need to be done to the property. With that in mind, check for such minor issues as chirping smoke detectors, leaky faucets, loose stair railings, and burned-out or flickering light bulbs. Major issues to look for include roof repairs that need to be completed and cracked or damaged walls and floors. According to Zillow’s homeowner research, sellers who address deferred maintenance items before an appraisal appointment are more likely to receive valuations that support their asking price. Simple things like clearing out any clutter you’ve accumulated over the years help make your home feel larger. Adding a fresh coat of paint to the interior or even changing the color palette to a more neutral one will make your home feel more updated. If you plan to include appliances in the sale, ensure that they are in good working order, and update them if possible. You can also prepare a list of any upgrades or improvements you’ve made, including dates and costs, to share with the appraiser — a tip recommended by both the U.S. Department of Housing and Urban Development (HUD) and real estate professionals affiliated with the National Association of Realtors.

In Conclusion

An appraiser is a professional who works with your lender to ensure that you are purchasing a home that is valued properly. While an appraisal may sound scary, it’s a common practice that protects buyers and lenders from investing unwisely. So, the next time you hear you need an appraisal, embrace the process and know that your home will be worth what you pay for it. Whether you are working with a large institution like Chase or a digital lender like SoFi, the appraisal process follows the same federally guided standards — giving you, the consumer, a reliable and independent measure of value before one of the most significant financial decisions of your life.