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?


46 Comments

  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 -

    John,

    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 -

    Shoshanna,

    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 -

    Michael,

    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 -

    Susan,

    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!
    Conny

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

    Conny,

    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 -

    Dana,

    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).

  17. Jenny April 7, 2015 at 6:33 am -

    We live in a home my father owns and we pay for. The appraisal value is 195K. The original loan four years ago was for 179 and we put down 36k. We can buy the home from my father for about 130K. Will we still need a down payment? We are eligible for a VA loan.

  18. Colin Robertson April 7, 2015 at 1:23 pm -

    Jenny,

    Probably best to contact some VA lenders to see what your entitlement can offer you.

  19. joe April 8, 2015 at 2:57 pm -

    Had a new home i purchased appraised. appraisal came out ok BUT…year built was wrong..appraised at 2 years older than it really is. should i have it changed and will appraised price be adjusted being house is 2 years newer? home is built 2004 thank you kindly

  20. Colin Robertson April 8, 2015 at 4:30 pm -

    Joe,

    Generally home buyers/sellers only care about the appraisal coming in at value (you said “ok” which probably means it did) to get the deal closed. And they usually only contest the value if it hinders their deal in some way.

  21. Susan April 9, 2015 at 9:02 pm -

    Chase pre-approved me and my husband for a conventional mortgage and issued a commitment letter as well. Some of our income was non conventional, which Chase knew from the start, but they didn’t decline until some Schedule A items on the commitment letter could not be met. A local credit union is now offering financing. But Chase will not assign the appraisal we already paid for. Is that standard procedure? Do I have any course of appeal?

  22. Daphne April 10, 2015 at 5:49 am -

    We just meet with a realtor to discuss listing our home. The comparables that she brought us were horrible. Our home appraised at $297,000 in 2009 and she wants us to list it now for $180,000. That seems ridiculous to us, since our home is immaculate and was the model home for the neighborhood. Is it normal for a homes value to decline by $117,000 over the years? We have put over $20,000 towards improvements since 2009. What gives?

  23. Colin Robertson April 11, 2015 at 9:21 am -

    Hi Daphne,

    I wouldn’t say it’s normal, but it’s not uncommon given what happened a few years ago. In fact, lots of homeowners are several hundred thousand dollars underwater as a result of the huge price swings. If you disagree with her assessment, you can visit Zillow or Redfin and search for recent similar sales in your neighborhood and point them out to her. Good luck.

  24. Colin Robertson April 11, 2015 at 10:07 am -

    Susan,

    It’s common practice. Appraisals for a conventional loan may be portable but only if both the original lender and new lender agree to it.

  25. Tracy Schmitz April 29, 2015 at 5:58 pm -

    Colin,

    I’m refinancing my home after a divorce. My lender ordered an appraisal that came in15k lower than what I paid for the home in 2008. After reviewing the report, I realized the appraiser forgot to add the square footage in for my 5th bedroom. (He measured it and had the pics). The square footage he listed in the report was 2,630 and the actual is closer to 2,900 sq ft. He determined the price per sq ft to be $112. I pointed the calculation error out to the lender and asked to have the appraisal updated reflecting the actual sq ft and valuation. The lender came back to me and said the appraiser refused to correct the error (I don’t know this to be true or false) and the lender ordered a new appraisal with a diff company. A week later, the new appraiser came back with the correct sq ft (2,900) and an IDENTICAL TO THE PENNY valuation, which dropped my price per sq ft to $101. All sales in my neighborhood over the past six months range from $112 – $132 per sq ft. I know that isn’t the only consideration, but my home has more amenities than most of the other homes. The second appraiser also refused to adjust his appraisal. Bottom line: the lender is requiring me to pay PMI since two appraisers came up with the same value. 1) why would an appraiser refuse to correct a blatant material error? Why would the second appraiser value the home the same as the first using completely different criteria? 3) AND make my home 10-25% less per sq feet than all the neighboring homes? Note: this is a newer neighborhood with all homes having relatively the same amenities. Sq ft range from 2,300-3,000 approx and ages 1-7 years old. Something isn’t right and I don’t know who to turn to in order to get a fair appraisal on my home–the lender refuses anything but the second appraisal.

  26. Colin Robertson April 30, 2015 at 9:10 am -

    Hi Tracy,

    I can’t tell you what’s going on in the appraiser’s head, maybe they had that valuation but just input the square footage wrong, so the corrected value was unchanged. Options include challenging their valuation, which it sounds like you already did, shopping with a different lender and being subject to more appraisal fees that may or may not come in at value, or bringing in more of your own money to reduce the LTV.

  27. Ruth May 4, 2015 at 5:40 pm -

    we are refinancing our rental property through Wells Fargo. They made us get an appraisal but are now asking us to sign a form attesting that we waive the right to an appraisal but it was already done at their insistence!!! Seems shady to me and when I questioned it I was told ” it’s just a form that needs to be signed”. Why would they do this?

  28. Colin Robertson May 5, 2015 at 3:27 pm -

    Ruth,

    The waiver relates to you receiving the appraisal by a certain date, possibly because it may interfere with loan closing.

    Check out: 1002.14 Rules on providing appraisals and other valuations. Or ask Wells to explain in detail what you’re waiving.

  29. Tracie May 13, 2015 at 10:50 am -

    If your appraisal comes in lower than anticipated/expected, can you legally request a second appraisal, or value shop? My lender is telling me no, it’s illegal.

  30. Colin Robertson May 13, 2015 at 12:48 pm -

    Tracie,

    The Appraiser Independence Requirements (AIR) prohibit lenders from ordering a second appraisal if attempting to influence the outcome of the first appraisal or for the purpose of value shopping. That’s probably what they mean.

  31. Tracie May 13, 2015 at 1:34 pm -

    Colin, thank you for your prompt response, appreciated.

  32. Goran Gustavsson May 17, 2015 at 4:18 pm -

    Colin,

    My wife and I just purchased a house a couple of months ago. The house was a short sale and resulted in a good deal on the house. We paid $575,000 while houses with similar square footage, age and upgrades are going for $700,000 +. The appraised value came in right at $575,000. While the deal did go through we are paying PMI as we put down only 15%. Is there anyway to seek a reappraisal? If so how should we go about it? It would be nice to not be paying the PMI each month and it seems that it should appraise for more given the comps, tax records etc.

    Thanks

  33. Colin Robertson May 18, 2015 at 2:53 pm -

    Goran,

    Generally the loan has to be seasoned (aka a couple years old) before the existing servicer will consider a new, higher value. Alternatively there’s the option of refinancing the loan at the new, higher value, although that involves costs and potential restrictions. In any case, both options require that higher value to come through to get the LTV down to 80% or less.

  34. jennifer hawkins May 21, 2015 at 8:46 pm -

    I came into a hardship and was thirty days from foreclosure. I owed $10,8954.86 so I asked a friend if he wanted to pay it off and move in. He agreed. We wrote a contract and he paid the above amount. Now that my credit is high enough I want the property back. what can I do to obtain this goal?

  35. Colin Robertson May 23, 2015 at 8:02 am -

    Jennifer,

    That’s between you and your friend, depending on the terms of your contract with each other.

  36. JoAnn May 27, 2015 at 10:38 pm -

    My husband and I are trying to refinance. My husband pulled apart my daughter’s bathroom to redo and ordered a shower. The appraiser came during the renovation and demanded the bathroom be completed before he would sign off on the appraisal, even though the materials were not in. My husband put the bathroom back together, however, didn’t put the connection to the p trap under the sink in, but did hook up the water, because he has to rip everything out again to do it the way we want. The appraiser is still refusing to sign off on the appraisal. Every time he returns to take another picture, it costs us more money. His bill just went from $400 to now $700. Is this allowable and can’t he just devalue the property for the bathroom. By the way, it’s 1 of 4 bathrooms that are in the house.

  37. Colin Robertson May 28, 2015 at 11:41 am -

    JoAnn,

    Unfortunately lenders often want major home repairs completed before they will fund a loan, which is why it’s best not to do renovations while trying to get a loan.

  38. Nichole Knight May 29, 2015 at 6:16 am -

    I hired two different Apprasiers for an apprasial on the same house, one came in at 195,000 and the other came in at 190,000 why is that??

  39. Colin Robertson May 29, 2015 at 9:13 am -

    Nichole,

    Appraisals can vary because individuals determine the value of a property and sometimes do so using different data. For example, different comps may have been used. You can compare the two appraisals side by side to determine why each came up with a different value.

  40. Brenda June 3, 2015 at 7:51 am -

    I’m selling my house in a gated “neighborhood” that surrounds a small lake. The appraisal is being questioned by the buyer’s underwriters because the appraiser used comps (unsure how many) based on lakeside neighborhoods five miles down the road but in the next county. Due to the poor market in the past few years, I’m the first property of my square footage in my neighborhood to go on the market in a couple of years and there are no similar lakeside neighborhoods in this county. The buyer wants a closing extension (I’ve already agreed to one). There’s no guarantee they won’t ask for an additional extension but I can’t afford for this to go on indefinitely as I’ve moved out (the original closing date was 6/1) and I can’t rent/buy until this deal is done. Any insight?

  41. Colin Robertson June 3, 2015 at 3:55 pm -

    Brenda,

    It’s always tough to get a good appraisal when the subject property has few nearby comps. Hopefully everyone will agree to a value based on what’s available.

  42. liz hall June 9, 2015 at 5:54 am -

    My husband and I are getting divorced and splitting the equity of our home. The appraisal we got was for 118,000 and the tax valuation for the home is 137,500. Should I try and get another appraisal since my husband is going to be buying me out?

  43. Colin Robertson June 9, 2015 at 11:28 am -

    Liz,

    That’s up to you and your ex and what you feel comfortable with in terms of valuation. A subsequent appraisal could come in lower, higher, or the same.

  44. steve June 19, 2015 at 7:36 pm -

    Here’s a good one for you. I had a Wells Fargo loan officer who completely screwed up my loan by listing the purchase price at 680K vrs. 699,900 on the loan contract as well as the contract sent to the appraiser. She ordered the appraisal and it came in at 780K. good news right? She decided to quit right in the middle of my loan and that whole nightmare is another long story. With the help of everyone at Wells we were able to get the loan contract fixed with the proper price and got our approval just a few days late and we are all set to close in the next 2 weeks. Today I receive a call from my current loan officer letting me know the now the underwriter has decided they didn’t like the appraisal and had revalued it to the purchase price listed on the report (this was listed wrong at 680K for the reasons above) I am now in a serious situation as they might have to restructure the loan causing me to come up with another 17k which will tap into my reserves thus not letting me qualify for the loan. This whole experience with Wells Fargo has been a nightmare and I am wondering if they are possibly liable for all of these mistakes, and what gives them the right to change a licensed appraisers figures by 100K when they hired them in the first place. I signed all of my loan contingency’s as soon as the loan was approved. so now I am in jeopardy of losing over 13k.

  45. Colin Robertson June 20, 2015 at 11:28 am -

    Steve,

    That sure is a “good” one…sorry to hear that happened to you. You certainly have an argument to either have them fix it or re-appraise it at their expense since they inputted incorrect information which seems to have swayed the value. Note I say argument, not sure they’re obligated to make it right.

  46. Libby June 26, 2015 at 2:21 pm -

    Has anyone heard of an appraisal coming in super low because the buyer is getting a 95% loan value? 2 different houses these people are trying to buy received super low appraisals….

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