Appraisals and Appraised Value

An “appraisal” is a comprehensive report that determines the value of your property based on a number of valuation factors, ranging from gross living space, to the view and the year a property was built.

If you plan on purchasing a new home or refinancing your current loan, you will most likely need to order an appraisal. Typically, a bank or mortgage broker will handle this for you, but you will still have to foot the bill unless it’s built into your mortgage rate.

Appraisal Costs

Appraisals typically cost anywhere from $250 to $500. The cost will vary based on property type, location, and square footage. Multi-unit properties and properties in rural areas will usually cost more to be appraised than a single-family residence in a densely populated area.

The most common type of appraisal is the Uniform Residential Appraisal Report, or URAR. It consists of interior and exterior photos, comparison sales (comps), and a complete cost breakdown of the property. This type of appraisal is a blend of both a market and cost approach.

How Is My Home Appraised?

The cost approach establishes value by determining what the cost would be to rebuild the structure from the ground up. The value approach determines value using comparison sales in the immediate area that have sold within a recent period of time.

The comparison sales are broken down in the appraisal report as well, and compared to the subject property. Each comparison sale is given or deducted value in a number of categories based on how it stacks up against the subject property. The net value of the comparison sales are then averaged to come up with a median appraised value for the subject property.

The value of the subject property is really the most important factor when it comes to securing financing. Banks and mortgage lenders need to ensure your property is in good condition, and truly worth what you or your broker say it’s worth. Any possible valuation inconsistencies will likely cause investors to shy away from purchasing the mortgage, leaving the bank or lender with a vacant property and a major loss if the property declines in value. Even Donald Trump could buy a shack and fail to obtain a mortgage because the property itself simply isn’t marketable.

The Appraisal Review

Once an appraisal is ordered, most banks and lenders will order a review of the appraisal. The review will be conducted by another appraiser or simply by the use of an AVM, or Automated Valuation Model. This is where many borrowers get into trouble. If the review comes in low, or if the property is deemed incomplete, hazardous, or unique in any way, a bank may decline the loan and deny financing to the potential borrower. Even if the borrower has outstanding credit and assets galore, a faulty, unique, or overvalued property can kill the deal.

That’s why it’s always important to use a qualified appraiser who assigns a realistic value to your home so there aren’t any surprises when it’s do-or-die time. It’s better to know the true value of your home upfront before you sign any contingencies or purchase contracts. And remember that the quality of your appraisal will determine the quality of your review (unless it’s automated).

The review appraiser will always find the value based on what’s given to them. If they receive a poor appraisal report, they will likely assign a poor value. I’ve seen brokers submit multiple appraisals and receive completely different values based solely on the original appraisal itself.

Come January 26th, 2015, Fannie Mae will let lenders use a proprietary tool called “Collateral Underwriter,” which provides an automated appraisal risk assessment complete with a risk score, risk flags (potential overvaluation), and messages to the submitting lender that warrant further review.

CU works by leveraging an extensive database of property records, market data, and analytical models to analyze appraisals for quality control and risk management purposes.

In the future, lenders may be granted waiver of representations and warranties on value so they can lend more freely, at least when it comes to questionable property values.

What If the Appraisal Is Lower Than the Purchase Price?

One issue that happens pretty frequently is the appraised value coming in lower than the agreed upon purchase price.

For example, if you agree to buy a home for $200,000, and apply for a loan with 20% down, you’d need a loan of $160,000 and a $40,000 down payment. That equates to a loan-to-value ratio of 80%, which is simply $160k divided by $200k.

Now imagine the lender comes back and tells you that the property only appraised for $190,000. Your $160,000 loan amount based on the $190,000 value would push the LTV to ~84%.  And yes, lenders use the lower of the sales price or the current appraised value. They don’t care what you’re willing to pay for it.

This is a problem because your loan would now require private mortgage insurance, and that’s if the lender can even offer you a loan above 80% LTV.

The solution would be to either ask for a review of the appraisal, renegotiate the purchase price (lower) with the seller, or put more money down, assuming you have extra cash on hand. Of course, you might wonder if you’re overpaying for the property if it doesn’t come in “at value.”

Using our same example, if you decided to move forward with the full purchase price and wanted to keep your loan at 80% LTV, you’d only be able to get a $152,000 loan.  That means you’d need to come up with $48,000 for the down payment, as opposed to the original $40,000.

Although an appraisal is irreplaceable, you can do some quick research on your own by using a free internet house values tool that generates a quasi-property appraisal in a matter of seconds by simply typing in the home address.

Read more: How accurate is a Zestimate?


  1. John Gonzalez November 10, 2014 at 3:20 pm -

    I have a home I am trying to keep after my divorce. My wife does not want to be part owner and so I have to buy her out. I am a retired vet so my home is under a VA loan. The only way for me to keep the home is by buying her equity out, but I was wondering what kind of appraisal should I use to convince her and her lawyer that I am being fair. After I find out the fair market value I would need to figure out how much I need to pay her and then apply for a loan. So that I can give her payment in one lump sum. Problem is I am not sure if I can afford another loan. The other option is to sell and not make enough equity to find another decent place to live.

  2. Colin Robertson November 10, 2014 at 4:31 pm -


    You may want to speak with some VA lenders to see if you qualify for a loan with the necessary amount of cash out to pay off your wife. Assuming you can get a loan, they’ll order an appraisal to determine the value of your property.

  3. Shoshanna Hollenbeck January 5, 2015 at 3:03 pm -

    Hi Colin,
    My husband and I are applying for a HELOC from Wells Fargo. They sent out an appraiser who took pix inside, outside, front & back yards, and neighborhood homes, as well as turned in comparable comp costs for our home. The house was valued at $137,000 above what we owe. Taking 80% of that, we were approved to get our loan PENDING another appraisal, however. My banker, who can’t answer my question as to why we need another appraisal, says that Wells Fargo told him our appraisal was a realtor’s appraisal and not a banker’s appraisal on our home, but there wouldn’t be any difference in the photos and comps in the area. I’m wondering why they’re asking for a second appraisal. BTW: Both appraisers are working for Wells Fargo. I haven’t hired an appraiser for this. We’re only asking for $40K too, so I’m very suspicious as to what more Wells Fargo is looking for. Could you please tell me what you think? Does this sound odd to you?
    Thanks so much,
    Shoshanna Hollenbeck

  4. Colin Robertson January 5, 2015 at 9:01 pm -


    It’s not uncommon for a bank to get a second opinion, but it’s usually when the appraisal comes in low and the client pleads to “find the value” via a second appraisal. The issue also comes up when a property hasn’t been owned very long and is quickly valued substantially higher than the most recent purchase price. Perhaps Wells is being cautious about the valuation in asking for a second one? Ideally it comes in at the value you need the second time around and it just amounts to a short delay. But I hope they’re not trying to charge you for two appraisals. Good luck!

  5. Michael Gaborick January 13, 2015 at 10:13 am -

    My fiancé and I are trying to get a Home Equity loan thru Bank of America. The branch manager said the bank can send out their own people for appraisal. But in following up with BofA customer service they tell me its against Federal law for the bank to do their own appraisal. Thus the bank has to use a third party and they are not allowed to phone the 3rd party with questions. They cited Federal regulation “RESPA”. Is this all bunk? What is the real truth?

    Thank you.

    Michael Gaborick

  6. Colin Robertson January 13, 2015 at 10:48 am -


    By “own people” they probably just mean the third party that they’re contracted to work with, which isn’t “them” but an independent appraisal company working on behalf of BofA for the purpose of valuing your home. Hopefully it comes in at the value you want/need.

  7. Susan January 27, 2015 at 5:26 pm -

    If we purchase a home for $540,000 and finance only $300k, does it still have to appraise out at full purchase price to get a traditional 30 yr mortgage?

  8. Colin Robertson January 27, 2015 at 7:58 pm -


    Lenders use the lower of the sales price or the current appraised value to determine the property value. So if the appraisal comes in lower than $540,000, the loan-to-value (LTV) will be based on that amount. For example, if the appraisal comes in at the right value, $300k/$540k is around ~56% LTV.

    If the appraisal comes in low, at say $500,000, the LTV would rise to 60% (300k/500k). Since you’re putting so much money down this probably won’t have any adverse effect on your loan. But if someone was only putting down 5-20%, it could potentially require an increased down payment to fit within certain LTV constraints. Or they could try to renegotiate a lower purchase price of the home.

    As far as loan program, you can get a 30-year loan regardless of the home’s value as long as you get approved for the loan and they offer 30-year loans.

  9. Ruth Reyes February 3, 2015 at 11:21 pm -

    Hi Colin,
    I am currently having a problem with a lender regarding an appraisal. When we first applied for a mortgage we applied with BofA and had the appraisal done by landsafe. Well things didn’t go as promised with bofa so we tried another lender recommended by our agent. Well this lender is telling us that the appraisal done by bofa can’t be used because it doesn’t have the new lenders name on it. We are buying a FHA home. And landsafe says that they can’t change the name. Is this common?

  10. Colin Robertson February 4, 2015 at 12:24 pm -

    Hi Ruth,

    Generally the second lender can accept the original appraisal if requested by the borrower, per HUD Mortgagee Letter 2009-29, though there are some exceptions. Take a look and if there’s a reason why it can’t be transferred.

  11. Ruth Reyes February 4, 2015 at 2:48 pm -

    Thank you so much! This cleared up a lot of questions.

  12. Conny M. March 11, 2015 at 8:21 pm -

    Hi Colin,

    I recently purchased a home in the Sacramento area and am hoping you can provide some advice. I am not a very experienced buyer and trusted my realtor to help me through the process. She did not. To make a long story short, I purchased a house using Wells Fargo and a loan officer my realtor recommended. Wells Fargo ordered an appraisal through RELS, which I understand is a subsidiary of Wells Fargo. The appraisal came in at the purchase price $447,000.

    A few weeks after close of escrow, interest rates dropped dramatically. I went back to Wells Fargo to refinance to a lower rate and shorter terms. They declined and I went with another lender. That lender ordered another appraisal which was completed 1 month after the purchase and came in almost $40,000 below purchase price. I researched and spoke with a few appraisers and it very much looked like the first appraiser made multiple mistakes. He did not use comps that were close to the subject property (even though they were available) and went out 1.5 miles for comps on 3/6 comps because they showed higher sales prices. My house only has 2 bedrooms (and a den) yet that was not taken into account in the appraisal. My house has some minor updates (some counters and floors but everything else is original and 20 years old) but was compared with other houses where everything was updated, again without taking this into account in the appraisal. The list goes on.

    I am not even sure where to start – everyone profited from this transaction….the realtor (Lyons Real Estate), the bank (Wells Fargo)…while I just lost $40K of my savings. Any advice you can provide would be much appreciated.
    thank you!

  13. Colin Robertson March 12, 2015 at 10:54 am -


    Home purchase appraisals tend to come in at around the purchase price unless something is seriously off. Appraisers generally attempt to justify that price, which you apparently agreed was a fair price since you made an offer at that price and wanted the home. It’s one of those hindsight type of things. Had you received a favorable appraisal after the fact, you wouldn’t question your older or smaller home. And had interest rates risen, you would be extremely happy with your current interest rate. I’m sure it’s frustrating, but you probably shouldn’t look at it like a $40k loss since you aren’t trying to sell the home at the moment I take it?

  14. Conny M. March 12, 2015 at 8:35 pm -

    Hi Colin,
    thanks for answering my question! That is a loaded question but after all the experiences I have had going through this real estate transaction, dealing with a seller who requested renting back the property and now is refusing to pay me rent and the real estate agency acting like they had no involvement…. if I could, I would probably try to get out of this house sooner rather than later.

  15. dana March 23, 2015 at 12:34 pm -

    Hi Colin,
    I have an FHA loan, my broker suggested a re-fi to a conventional to stop the MIP and take out some equity. I got the appraisal done and we were funding that day when the underwriter sent more demands. At the last minute broker decided to switch to an FHA re-fi. The SAME underwriter, SAME finance company now 26 days later is asking for ANOTHER appraisal- and another $175 to cover it… LAST minute- is this reasonable?

  16. Colin Robertson March 23, 2015 at 5:25 pm -


    My guess is that you didn’t qualify for a conventional loan for some reason? Did they explain why? You can always attempt to negotiate those fees, especially if they delayed your closing and made you change loan programs (assuming it was their fault).

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