What is a home appraisal?

A home appraisal is a process by which a licensed appraiser assesses the value of a home. 

During the home appraisal, a licensed appraiser will conduct an extensive assessment of the property. They’ll be assessing all of the elements that impact the property’s value, including structural condition, square footage, built-in appliance upgrades, number of bedrooms, lot size, location (schools, etc.), additions or renovations, foundation and basement condition, architectural style, and needed repairs.

The appraiser will also look at “comps”—properties with similar characteristics recently sold in the same market. With all of this information, the appraiser will assess the value of the home.

Why is the home appraisal important for buyers and sellers?

In the case of a lender-financed purchase, the home appraisal will be required by the lender to protect their interest in the home—to make sure the amount of the loan isn’t greater than the market value of the property. Otherwise, it’s optional for cash buyers and sellers—but it could be a good idea for both to make sure they aren’t overpaying or underselling. 

For financed buyers (required): The lender requires the home appraisal to know they won’t lose money in the case of default. Therefore, lenders generally base your loan approval and amount on the appraisal—not the agreed-upon purchase price.

For cash buyers (optional): You may want to know how the property’s market value compares to its agreed-upon purchase price before closing.

For sellers (optional): It may be a good idea to conduct an appraisal before deciding on a listing price. That way, you’ll know what your property is worth—especially if you’ve remodeled or made upgrades or additions to your property.

What happens if the appraisal comes back low? Check out our guide to what do to in the case of a low home appraisal to find out.