Property Appraisal FYI

If you are financing your home purchase, you will likely be required to get a home appraisal as one of the steps between signing and close. Here’s what you should know:

What is an appraisal?

An appraisal is an opinion on a home’s market value that helps a lender ensure the purchase price is in line with the property value. The process is led by a licensed or certified residential appraiser—an independent third party engaged by the lender to provide a professional judgment on the home’s value. Appraisers do not represent the buyer or seller; their sole duty is to come up with a fair and accurate valuation of the property. While all appraisers follow a set of standards, appraisers who are REALTORS® have the added commitment to uphold the REALTOR® Code of Ethics.

Do I have to get an appraisal?

If you are taking out a mortgage on your new home, your lender will usually require you to get an appraisal to help establish the “loan-to-value (“LTV”) ratio,” or the percentage of the home's price that you'll borrow. Higher LTV ratios are riskier investments for the lender, so generally they look for LTV ratios of 80% or less. If you are paying in cash, an appraisal isn’t required, but it can still be useful to get a third-party opinion to make sure you aren’t overpaying. In certain instances, the requirement for an appraisal may even be waived by either the lender or the buyer to make their offer more attractive to a seller.

What does an appraiser look at?

Different appraisers may take different approaches. By referencing databases such as Multiple Listing Services—online platforms that compile home listings in a given market—appraisers can use recently sold properties that have similar characteristics, called “comparables,” to help come up with a reasonable value for your home. They will also look at the home’s condition, recent renovations or improvements, amenities, location, size, and other characteristics. Whatever method an appraiser uses, it must be independent, un-biased, and backed up by evidence.

Do appraisals take place in person?

An appraisal may include an in-person visit, but it is not always required. In some instances, hybrid and desktop appraisals are used where appraisers collect data remotely and speak with reliable third-party sources familiar with the property and surrounding area, such as current or former agents of the comparables being considered.

Is my agent allowed to communicate with the appraiser?

Yes. Your agents and others involved in the transaction are allowed to communicate with the appraiser and provide property information. It is not only unethical, but it is also unlawful for agents to intimidate, persuade, or bribe an appraiser to influence the valuation, and an appraiser may not disclose confidential information at any time.

What happens if the appraised value is different from the purchase price? 

A mismatch between a home’s appraised value and the purchase price can impact how much your lender allows you to borrow for your mortgage. You can negotiate to include an appraisal contingency—a condition that the value and purchase price must align in order for the transaction to continue—in your purchase agreement, but an appraisal contingency is not required.

Will I receive a copy of the appraisal?

Yes. The Federal Equal Credit Opportunity Act requires lenders to automatically send you a free copy of home appraisals and all other written valuations on the property after they are completed. However, if you are granted an appraisal waiver by your lender, your lender is not required to send you a copy of the valuation report.

Can I request that an appraiser correct or update the appraisal?

If you believe the appraiser did not consider important information about the property or available comparables, you can request a reconsideration of value (“ROV”) to ask that the appraiser reevaluate their analysis. Your lender will provide instructions on how to initiate an ROV, and your agent can help you gather the appropriate information to complete the request. If you believe an appraiser has reached an inaccurate or biased decision, you can also file a report with your state and federal regulatory agencies using the Appraisal Subcommittee’s Appraisal Complaint National Hotline, or a local nonprofit fair housing organization (find by ZIP code here). Find support and other resources here.