When you sell your house, refinance your mortgage, or challenge your property taxes, one thing always comes up: real estate appraisal. But most people don’t actually know how it works. They think it’s just a guess, or worse - a number pulled out of thin air by someone who’s never stepped inside their home. That’s not true. A real estate appraisal is a detailed, data-driven process that follows strict standards. And if you understand how it’s done, you can spot mistakes, prepare better, and even save money.
What Exactly Is a Real Estate Appraisal?
A real estate appraisal is an unbiased estimate of a property’s market value. It’s not the same as a home inspection, which checks for broken pipes or mold. It’s not a comparative market analysis (CMA) that a real estate agent might give you for free. An appraisal is a formal, licensed evaluation performed by a certified professional. It’s required by lenders when you’re buying or refinancing a home because they need to know the property is worth what you’re borrowing.
The appraiser doesn’t decide the price. They find out what similar homes have sold for recently, then adjust for differences in size, condition, location, and features. Think of it like checking eBay prices before you sell your old TV - but with way more rules, documentation, and legal weight.
How the Appraisal Process Actually Works
The process usually takes 3 to 7 days from start to finish. Here’s what happens step by step:
- Ordering the appraisal - Your lender picks a licensed appraiser from their approved list. You don’t get to choose, but you can ask for a copy of the report.
- Property inspection - The appraiser shows up, takes photos, measures the square footage, notes the number of bedrooms and bathrooms, and checks for upgrades like new windows, a finished basement, or a remodeled kitchen. They also look for signs of neglect: cracked foundations, water damage, or outdated electrical systems.
- Comparables (comps) research - They pull data from the Multiple Listing Service (MLS) and public records to find 3 to 5 recently sold homes within a 1-mile radius that are similar in size, age, and style. A 2020-built, 3-bedroom, 2-bath home with a two-car garage on a quarter-acre lot? That’s the target.
- Adjustments - If your house has a pool and the comp doesn’t, they add value. If your neighbor’s house sold for $450,000 but has a bigger lot and newer HVAC, they subtract from your value. These adjustments are based on local market trends, not guesswork.
- Final report - The appraiser writes a 10- to 20-page document that includes photos, maps, sales data, and a detailed justification for the final value. This goes to your lender, and you’re entitled to a copy.
Most appraisals come in close to the contract price. But when they don’t, things get messy.
Why Appraisals Sometimes Come In Low
A low appraisal is one of the most stressful surprises in home buying. You’ve agreed to pay $500,000. The appraisal comes back at $470,000. Now what?
It’s not always the seller’s fault. Sometimes, the appraiser used outdated or irrelevant comps. Maybe they missed that your neighborhood had three sales last month that were higher than the ones they picked. Or maybe the market shifted fast - in places like Austin, Denver, or Boulder, prices can jump 5% in 60 days. If the appraiser didn’t account for that, the number will be wrong.
Other times, it’s the house. A 1980s kitchen with laminate countertops and no island? That’s not a selling point anymore. A roof that’s 20 years old? That’s a red flag. A backyard that’s half swamp? That’s a liability.
Here’s the truth: appraisers don’t care if you spent $40,000 on a custom backsplash. They care if buyers in your area are willing to pay more for that feature. If no one else in the neighborhood has it, it won’t add value.
How to Prepare for an Appraisal
You can’t control the market. But you can control how your home presents itself. Here’s what actually moves the needle:
- Clean and declutter - Appraisers aren’t looking for a staged home. But they are looking for signs of care. A cluttered garage or dirty windows suggest neglect.
- Fix obvious issues - Replace broken porch lights, patch holes in the drywall, fix leaky faucets. These aren’t upgrades - they’re basic maintenance. But they show the house is well-kept.
- Provide documentation - Bring a list of recent improvements: new HVAC installed in 2023? Roof replaced in 2022? Basement finished in 2021? Print receipts or permits. Hand them to the appraiser. They’re allowed to consider documented upgrades.
- Don’t be pushy - Don’t follow the appraiser around or argue about the value. That raises red flags. Let them do their job without pressure.
Some people think painting the front door bright yellow will boost value. It won’t. Others think adding a fireplace will help. It might - if it’s a real wood-burning one in a neighborhood where people expect it. But if it’s electric and no one else has one? It’s just a decoration.
Appraisal vs. Market Value: What’s the Difference?
Here’s where people get confused. The appraisal value isn’t always the same as what the house will sell for. Why?
Appraisals reflect what a typical buyer would pay under normal conditions - not what a desperate buyer might pay, or what a cash investor might offer. Market value is what buyers are actually willing to pay right now. In a hot market, homes sell above appraisal value all the time. In a slow market, appraisals often come in higher than the final sale price.
For example: In Boulder in early 2025, homes were selling 10-15% over asking price. But appraisers were still using sales from 60-90 days ago. That gap caused a lot of failed deals. Buyers couldn’t get loans for more than the appraised value. Sellers refused to lower prices. It created a logjam.
That’s why some buyers now include an appraisal gap clause in their offers - agreeing to cover the difference if the appraisal comes in low. It’s risky, but in tight markets, it’s becoming common.
Who Pays for the Appraisal?
Usually, the buyer pays. It’s part of the closing costs and typically costs between $300 and $600, depending on the home’s size and location. In some cases, sellers pay - especially if they’re trying to make the deal smoother. But it’s not common.
There’s no law that says the buyer has to pay. But lenders require it. And since the lender orders the appraisal, they control who does it. That’s why you can’t pick your own appraiser - even if you know one who’s great.
Can You Challenge a Low Appraisal?
Yes. And you should if you believe it’s wrong.
First, get a copy of the report. Look at the comps. Are they recent? Within a mile? Similar in size and condition? If the appraiser used a 2022 sale from across town that’s 500 square feet smaller and has no garage, that’s a problem.
Then, gather evidence. Find three better comps - homes that sold in the last 60 days, are similar, and are listed in the MLS. Print them. Highlight the differences. Write a short letter to the lender explaining why you think the appraisal is inaccurate.
Most lenders will allow a reconsideration of value. They’ll send the report back to the appraiser with your evidence. Sometimes, the appraiser agrees and adjusts the value. Sometimes they don’t. If they don’t, you can request a second appraisal - but you’ll pay for it again.
Don’t expect miracles. Appraisers are trained to be conservative. But if the data supports a higher value, they’ll change it.
What Happens If the Appraisal Is Too High?
It’s rare, but it happens. If the appraisal comes in way above the contract price, the lender might still approve the loan - but the buyer might get cold feet. Why pay more than the home is worth? And if the buyer is using an FHA or VA loan, the appraised value sets the maximum loan amount. A high appraisal doesn’t help them borrow more.
For sellers, a high appraisal feels good. But it doesn’t mean they can ask for more money. The contract price is locked in. The appraisal just confirms the deal was fair.
Why Real Estate Appraisal Matters Beyond Buying and Selling
Appraisals aren’t just for transactions. They’re used for:
- Property tax appeals - If your tax bill jumped 20%, you can use a recent appraisal to prove your home’s value hasn’t changed.
- Estate planning - When someone dies, their estate needs to know the home’s value for inheritance taxes.
- Divorce settlements - Courts rely on appraisals to split assets fairly.
- Insurance coverage - Your home insurance should cover the cost to rebuild, not the market value. An appraisal helps set that number.
Even if you’re not selling, knowing your home’s true value helps you make smarter financial decisions.
Final Thoughts: Don’t Fear the Appraisal
A real estate appraisal isn’t a test. It’s not a judgment on your home or your taste. It’s a snapshot of the market, based on facts, not feelings.
If you’re buying, understand that it’s a safeguard - for you and the lender. If you’re selling, prepare your home and provide documentation. If you’re challenging a low value, bring hard data, not opinions.
The system isn’t perfect. But it’s the best we have. And if you know how it works, you won’t be caught off guard. You’ll be ready.
1 Responses
Appraisals? More like guesswork with a clipboard. My neighbor got $200k less because the appraiser didn't know what a 'modern kitchen' looked like. He thought granite was 'glossy plastic'.