The Mortgage Appraisal Process

How Do Appraisers Value A Property?

Understanding Residential Real Estate Appraisals

A critical component to buying a home is the appraisal. An appraisal is a third-party professional evaluation of the value of a property that is used by a lender to help determine the amount of a loan.

In compliance with the Home Valuation Code of Conduct (or HVCC), appraisers hired for a mortgage transaction on a conforming loan are chosen from a pool of qualified appraisers at random. Neither you nor your lender has the flexibility of deciding which appraiser will inspect your home.

The Key Components Of An Appraisal

The Site: Location, view, topography, lot size, utilities, zoning, external factors, highest and best use, landscaping features…

Design: Quality of construction, finish work, fixed appliances, and any defining features…

Condition: Age, deterioration, renovations, upgrades, added features…

Health and Safety: Structural integrity, code compliance…

Size: Above grade and below grade improvements…

Neighborhood: Is the property comparable to others in the neighborhood?

Funcional Utility: Is the property functional as built – style and use?

Parking: Garages, carports, shops, etc..

Other Factors in Determining Value:

Curb appeal, lot size, and conforming to the neighborhood are obvious to the appraiser when they drive down into the neighborhood and pull up in front of your home.


FAQ’s About Home Values and Residential Appraisals

The answer to this question is no. The lender will order the appraisal through an independent third-party. You will need to be prepared to pay for the appraisal in advance, which can cost anywhere from $350 to $1,500, depending on the type of appraisal needed.


It isn’t fair, especially if your home is well-kept and in great condition compared to the run-down foreclosures in the neighborhood.

Unfortunately, if every recent sale, or nearly all sales, are foreclosures at reduced prices, then the appraiser is forced to use recent sales and trends as comparable values.

High foreclosure rates generally depress values and show a trend of constantly lowering value.

The purpose of an appraisal is to make sure that an independent non-interested third party verifies the “most likely” sale price based on the market value and condition of the home.

In addition, appraisers are governed by rules intended to standardize the subjective process of determining a home’s value.

Listing prices on the other hand are influenced by the real estate agent, and set by interested (and often emotional) sellers.

Often times, sellers will list their home based on the amount needed to pay for the real estate agent, closing costs, and cover the amount of the mortgages.

Unfortunately, no. Your down payment amount is based on the lesser of the appraised value or the purchase price. But, considering you will have immediate equity in your home upon closing, you are in a really good position!

Even though the neighborhood across the main street had similar homes in the higher price range, especially after the seller’s extensive upgrades, appraisers will always use homes from the actual neighborhood to establish value first.

Not all improvements to the property are equal in producing added value.

Even with cosmetic repairs, the property may still be much more comparable to the foreclosure next door than the new home a block away. Look first at the “guts” of the property: the electrical, heating & air, etc. If they are updated, then the number of beds/baths and square footage are the next biggest weight, followed by a genuine updating of cosmetic improvements.

In the case of an FHA loan, you cannot order another appraisal. Once an FHA appraisal is completed, the appraised value is logged into the FHA’s system for you and for any future buyers of that property.

While the appraiser will be evaluating many aspects of the home, it is always a good idea to make sure the property is as clean as possible to ensure the appraiser can move about easily. Also make sure all utilities are on and functioning properly at the time of the appraisal.