What is a Home Appraisal and How Might It Affect Your Home Loan?


Every property must get a home appraisal as part of the purchase process. Unlike a home inspection that focuses on the property’s condition, an appraisal evaluates its worth in the current real estate market. This crucial evaluation not only impacts the final purchase price but also plays a significant role in determining whether a lender will approve a mortgage for the property.

What is a Home Appraisal?

A home appraisal is a professional assessment of a property’s current market value conducted by a licensed appraiser. This process involves a thorough examination of various aspects of the property, including its size, condition, features, and location, in comparison to similar properties in the area. Lenders require appraisals to ensure that the amount they are financing aligns with the property’s actual worth, minimizing the risk associated with the loan. Home appraisals are crucial in real estate transactions, as they provide an objective and unbiased estimate of a property’s value, helping both buyers and sellers make informed decisions and facilitating fair negotiations.

What Do Appraisers Look for to Offer an Estimate of a Home’s Value?

Appraisers employ a specific set of criteria to determine the estimated value of a home, with a primary focus on three crucial aspects:

Living Condition of the Home: Unlike a home inspector who identifies specific faults, appraisers assess the overall condition of the property. They examine the number of bedrooms and ensure the absence of safety hazards while checking the functionality of essential home systems. Their paramount concern is whether the home is suitable for habitation, as an unsafe dwelling can significantly lower its appraisal value.

Home Improvements: Any permanent upgrades or renovations made to the property are considered by the appraiser, but only if these improvements are considered fixtures that will remain with the house when it changes ownership. Non-permanent alterations are typically excluded from the appraisal. Additionally, appraisers consider improvements outside of the main living areas, such as garage renovations, finished basements, or landscaping features like pools and spas.

Nearby Home Values: Appraisers also analyze similar homes in the vicinity, researching the selling prices of comparable properties and their current market values. This comparative analysis helps appraisers arrive at an appropriate dollar amount for the property being appraised.

Once the appraiser completes their assessment and research, they compile their findings into a formal report that includes their final valuation of the property. This detailed report is then provided to the mortgage lender, playing a crucial role in determining the loan amount that can be approved for the property in question.

What Happens After the Home Appraisal?

Once a home has appraised and a value has been decided, it is compared against the dollar amount the property is currently under contract for. Ideally, the value should come in at or over the price agreed upon and listed in the contract. However, sometimes the appraised value will come back lower than the amount written on the contract. This can cause a problem with the loan as most home loans will be written for the assessed value of the property and no more. So, if the home appraises at $500,000 and you are under contract for $650,000, you will likely need to bring additional cash to the table to cover the difference and close unless you can successfully renegotiate the purchase price with the seller.

Be sure to consult with both your real estate agent and your loan officer at the Potempa Team about your options and possible next steps if the home you want to buy “doesn’t appraise.” Luckily, it doesn’t happen too often and may not happen to you!


With the appraisal out of the way, the next steps are for your loan to go to processing and initial underwriting. Be sure to bookmark our 14-step guide to buying your next home here!

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