Real Estate Appraisals: How Your Home's Value Gets Determined

What an Appraisal Is and Who Orders It

The lender orders an appraisal to confirm the property is worth at least what they are lending. They do not want to lend $500,000 against a property that is only worth $450,000. The buyer pays for it (typically $400–$600). An independent licensed appraiser visits the property, analyzes comparable sales, and produces a written opinion of value. The lender uses that appraised value — not the agreed purchase price — as the basis for the loan amount.

How Appraisers Determine Value

Residential appraisers primarily use the comparable sales approach. The appraiser identifies three to six recent sales of similar properties (called 'comps') within a reasonable distance and time period — ideally within the last 3–6 months and within 1 mile in urban areas, further in rural areas. Adjustments are made for differences in size, condition, features (updated kitchen, finished basement, garage), and location. The adjusted comparable prices bracket a value range, and the appraiser states their opinion of value within that range. Critically, the appraiser cannot consider the agreed purchase price — they must work from independent market data. In fast-moving markets where prices have risen sharply, appraisers sometimes struggle to find comparable sales that support the agreed purchase price — because similar homes sold six months ago at lower prices. In these situations the reconsideration of value process is particularly important and worth pursuing before renegotiating price or canceling the contract.

What Happens When the Appraisal Comes In Low

A low appraisal occurs when the appraised value comes in below the agreed purchase price. The lender will only loan based on the lower appraised value. This creates a 'gap' between what the buyer agreed to pay and what the lender will finance. There are five common responses. 1. Seller reduces the price to the appraised value. 2. Buyer brings extra cash to closing to cover the gap. 3. Buyer and seller split the gap. 4. Buyer exercises the appraisal contingency and cancels the contract (recovering earnest money). 5. Seller contests the appraisal — the buyer's lender submits a 'reconsideration of value' request with additional comparable sales the original appraiser may not have considered. A low appraisal is not necessarily a deal-killer, but it requires honest negotiation. The most common outcome is a price reduction or a split.

How Sellers Can Prepare for the Appraisal

Present the home well on appraisal day: clean, decluttered, all systems operational. Prepare a written list of every improvement made (with approximate dates and costs) to hand to the appraiser. Compile recent comparable sales you believe support your asking price. The appraiser may not have considered all relevant comps, and providing them is appropriate. Be present (or have your attorney available) to answer questions about the property's history and improvements.

Pricing Your Home Accurately Without an Agent

The best way to avoid a low appraisal is to price your home accurately from the start. A sale price that reflects real market data is far more likely to be supported by an independent appraiser than one based on wishful thinking or emotional attachment to the home. Use free public resources to research comparable sales: county assessor and recorder websites, recently-sold data on Zillow and Redfin (sold prices, not asking prices, which are very different numbers), and public data sources like ATTOM. Criteria for a good comparable: same property type, within 1 mile (urban) or 3–5 miles (suburban/rural), similar size (within 20% of square footage), similar age, sold within the last 6 months. Adjust for differences: an updated kitchen adds value, a busy street subtracts value. Pricing accurately based on real sold data is the single biggest factor in whether a FSBO sale closes successfully.

What This Means in New York, New Jersey, and Florida