What Homebuyers Can Expect with an Appraisal — and What to Do If It's Below Your Offer Price

Buying a home is one of the most important financial investments you'll make, and getting a professional evaluation of its condition and value before you finalize the purchase is critical.

What's an Appraisal and Why It's Important

An appraisal is an opinion of the market value of a home, and it's performed by a third-party professional with state-issued appraiser credentials.

The main purpose of an appraisal is to help the lender evaluate the collateral for your loan, which is your home. As a homebuyer, you can also use the appraisal report to help decide whether the purchase price you've agreed to with the seller is acceptable.

A home appraisal report provides useful information about the property, and the appraiser takes into consideration several items when determining a home's value, including:

• Basic physical attributes, such as the property size, age and room count.
• Comparable properties within the area.
• Condition.
• Location and market conditions.
• Lot size.
• Upgrades and amenities.

The appraiser provides a report to the lender, and in most cases the lender is required to provide a copy to you. The appraisal report will share the appraiser's analysis that supports the valuation of the home, and it will include photos and descriptions of comparable home sales.

It can take roughly one to two weeks, or even longer in areas with high appraisal activity, from the time of the initial inspection of the property until you receive the final report.

Your lender is responsible for ordering the appraisal, but you will likely be required to reimburse the lender for the cost, typically as part of your closing costs. Appraisal costs vary greatly by geographic region, but the median cost is $450 to $700.

Ask About Whether You Can Get an Automated Appraisal

If you're looking to save on closing costs and reduce the time to close on your home, you may be able to trade the in-person appraisal for an automated home assessment.

This alternative to a traditional appraisal is called an automated collateral evaluation (ACE) appraisal waiver. It uses data, analytics and historical information about the property to estimate its value, rather than relying on a standard appraisal.

To see if you qualify for an automated assessment, talk with your loan officer.

My Appraisal Came in Low — Now What?

If the property is appraised at a value that falls below what you've offered to pay for the home, you have options:

• If you find errors, request a new appraisal. Thoroughly review the appraisal report to see if key information may be missing. If you feel a new appraisal is warranted, contact your lender. The lender can make the formal request for a second appraisal report, but only when the original appraisal report is deemed materially deficient.
• Renegotiate the sale price. Share the appraisal report with the seller to show the values of comparable homes in the area. This may provide you with an opportunity to renegotiate the sales price.
• Find additional funds. If the seller denies your request to reduce the sales price, consider putting more money toward your down payment. If the appraisal comes in lower than the purchase price, your lender will likely decrease the amount they'll allow you to borrow. You'll need to pay more up front to make up the difference between the loan amount and the cost of the home.
• Continue with your search. Your contract should include an appraisal contingency clause, which allows you to cancel the contract. Although walking away from a place you want to call home is hard, the right home for you may be just around the corner.