The Home Appraisal Process: What Buyers and Sellers Need to Know

A home appraisal is an essential part of the real estate transaction process for both buyers and sellers. Whether you’re purchasing a home with financing or selling a property, understanding how appraisals work and how they can affect the deal will help you navigate the process smoothly. Here’s what you need to know about home appraisals, whether you’re buying or selling a property.

1. What is a Home Appraisal and Why is it Required?

A home appraisal is an expert, independent opinion of a property’s market value, typically conducted by a licensed or certified appraiser. The appraiser’s job is to assess the home’s condition, size, location, and compare it to recently sold properties, known as “comparables.” This helps the lender ensure that the home’s value aligns with the purchase price.

For buyers, an appraisal is usually required by the lender to establish the loan-to-value (LTV) ratio, which determines how much of the home’s price will be financed through the mortgage. This ensures the lender isn’t loaning more than the home is worth. If you’re paying cash, an appraisal is not mandatory, but it can help you avoid overpaying for the property.

For sellers, the appraisal is crucial, as lenders will not approve a loan if the appraised value is less than the sale price. Ensuring that the home is valued correctly helps protect both the buyer and seller during the transaction.

2. How Do Home Appraisals Work and What Do Appraisers Look For?

Appraisers evaluate several factors when determining the home’s value, including its condition, size, location, and any recent improvements. They compare these details with recently sold properties in the area, considering the home’s structural integrity, any permanent fixtures, landscaping, and neighborhood conditions.

The process can involve an in-person visit, where the appraiser inspects the home and exterior. In some cases, hybrid or desktop appraisals may be used, where the appraiser gathers data remotely and consults third-party sources familiar with the property and its surrounding area.

Sellers and their listing agents can assist the appraiser by providing a list of recent upgrades or repairs, such as a new roof or kitchen renovations. This ensures the appraiser has all the facts necessary for an accurate assessment.

3. What Happens if the Appraised Value Doesn’t Match the Purchase Price?

If the appraisal comes in lower than the agreed-upon sale price, it can create complications for both buyers and sellers. For buyers relying on mortgage financing, a low appraisal may limit the loan amount, as lenders will only lend based on the appraised value. In this case, there is typically a clause in the purchase contract that states the parties may renegotiate based on the appraisal shortfall. This shortfall could mean the buyer may have to pay the difference in cash or renegotiate the price with the seller, this typically happens in a sellers’ market. 

In a buyers’ market, sellers may have to lower the price to match the appraisal,  in a neutral market, it is more likely that the parties may split the difference, or they could dispute the valuation if they believe the appraiser overlooked key factors. It’s important to remember that the lender typically makes the final decision on whether to accept the appraisal or request a second opinion.

In most cases, buyers’ purchase contracts include an appraisal contingency in the contract, allowing them to back out of the deal or renegotiate if the appraisal is too low. For sellers, understanding how appraisals work and being prepared to adjust the price can help avoid losing a potential sale.

4. How Can Sellers Ensure the Best Possible Appraisal?

While sellers can’t directly influence the outcome of the appraisal, there are steps they can take to improve the chances of a favorable valuation. One key factor is ensuring the home is in excellent condition, both inside and out. Curb appeal can make a significant difference, as a well-maintained exterior may help prevent the home from being appraised lower due to visible issues. Sellers should also make necessary repairs before the appraisal takes place.

Providing the appraiser with a list of recent improvements, such as new appliances, updated bathrooms, or major renovations, can also help ensure that the property is valued accurately.

While it’s not always necessary for sellers to get an appraisal before listing their home, it may be useful in unique situations or if there are few comparable properties nearby. In most cases, a real estate agent can provide a good estimate of the home’s value through a comparative market analysis (CMA).

Whether you’re buying or selling, the appraisal process is an essential step in a real estate transaction. Understanding how it works and knowing what to expect can help you navigate any challenges and ensure that the process goes as smoothly as possible. For more information, always consult with a real estate professional or financial advisor.

Dulcie Crawford is a native Nevadan, born and raised in Las Vegas. Dulcie is a Community Expert & stays current with updates on market trends & market conditions.  A senior Realtor with Signature Real Estate Group, she has sold over 1,300 homes since 1998. You are assured an exceptional experience when buying or selling Real Estate with The Dulcie Crawford Group.