How Do Appraisals Work?


Are you currently studying to become a real estate agent? If so, you’ll need a solid understanding of how the appraisal process works. A home appraisal is essential to establishing the true value of a property. It provides an unbiased, qualified valuation that can be used by all parties to engage in a fair transaction. As a practicing agent, you will have to deal with appraisers, appraisals, and the process that comes with it throughout your entire career. Let’s help you get more familiar!

What is a Home Appraisal?

A home appraisal is a professional opinion of a property’s value from a certified or licensed appraiser. It’s used to establish a baseline value that buyers, sellers, and lenders can refer to during the home purchase or refinancing process. For lenders, accurate appraisals enable them to issue an appropriate loan to the buyer. For example, an appraisal that is too high would result in the lender providing too large of a loan, whereas an appraisal that is too low would result in a seller receiving a lower price or a buyer not qualifying for a high enough mortgage.

When it comes to buyers and sellers, a certified appraisal allows both parties to agree on a fair price. For example, a buyer could refer to the appraisal value if the seller sets the listing price too high. Typically, buyers will cover the cost of home appraisals.

How Does the Home Appraisal Process Work?

In most cases, the home appraisal is scheduled after a buyer and seller agree on a sale price. This is to confirm the property’s value before closing. The process is relatively simple and generally follows the steps listed below:

  1. First, a certified appraiser selected by the lender will inspect the property and generate a report. The details of what is included in an appraisal report are covered in the next section.


  2. The borrower or buyer pays the appraisal fee. This usually amounts to $350-$750 depending on location.


  3. If an appraisal value is lower than expected, this can cause the transaction to be canceled or delayed.

If a seller believes their appraisal to be too low, they can challenge the report by contacting the lender. For example, the report may fail to include the correct number of rooms, list the wrong square footage, rely on inaccurate market data, or fail to take major upgrades/renovations into account.


A typical home appraisal report includes:

1. Property Characteristics

This refers to the current condition of the property and a list of outstanding features. Property information may include its size, utilities, address, parcel number, census tract, HOA fees, or other relevant data. It will also detail the year the house was built, its design style, foundation type, materials used, and other information regarding permanent elements of the property.


2. Contract

This section includes the contract price, date, and financial assistance information. 


3. Market Background

This includes local market conditions that may influence the appraisal’s value, such as location, neighborhood, degree of development, historical price trends, etc.  


4. Value

There are two approaches to value calculations. The cost approach assesses whether it building a new home with the same features would cost more or less. The income approach considers rental income to determine property asset value. The determined value in an appraisal is generally valid for around four months. 


5. Special Instructions

This section could include special requirements issued by mortgage lenders or relevant local agencies. In different countries and regions, there may be unique characteristics that lay outside of the standard reporting items.


Now that you’ve read the definition of a home appraisal and seen some examples, you should be well equipped to handle this in your upcoming exam! If you are not already signed up, consider joining A-Ha Real Estate Prep or our Pre-Licensing Course at the Indiana Real Estate Institute!





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