A licensed appraiser's professional opinion of the home's market value. Required by the lender to confirm the home is worth what you're paying. Typically costs $500–$800, paid by the buyer.
The appraisal is the lender's independent check that the home is actually worth what you've agreed to pay. They won't loan more than the property is worth — if the appraisal comes in low, you have a problem to solve.
A licensed appraiser visits the home, photographs it, measures it, and compares it to recent sales of similar nearby homes ("comparables" or "comps"). They produce a written report with the appraised value. The lender uses that value (or the contract price, whichever is lower) to set the loan amount and LTV.
If the appraisal comes in below the purchase price, you have options: renegotiate with the seller, bring more cash to make up the difference, challenge the appraisal with additional comps, or walk away (if your contract has an appraisal contingency). The appraisal is typically a buyer-paid cost of $500–$800.
Example
You're under contract at $400K. The appraisal comes back at $390K. Three options: seller drops price to $390K, you bring an extra $10K to closing, or you and the seller meet in the middle ($395K with you covering $5K extra).
Also known as
home appraisal, appraisal report, valuation
Source:
CFPB