Home appraisals are done by a licensed, independent appraiser who visits the property, measures and photographs it, inspects the condition of the structure and major systems, and then compares it to recent sales of similar homes nearby to arrive at an estimated market value. Mortgage lenders require this step before approving most loans because the home itself is the collateral, and the lender needs confirmation that the loan amount doesn’t exceed what the property is actually worth. The appraiser has no financial stake in whether the deal closes, which is the point.
What the Appraiser Does On Site
The inspection usually starts outside. The appraiser measures the exterior perimeter of the structure to calculate gross living area, following the ANSI Z765 standard that Fannie Mae requires for most residential appraisals.1Fannie Mae. Standardizing Property Measuring Guidelines Any space partially or fully below grade gets reported separately rather than lumped into the above-grade finished square footage. Open porches, garages, and unfinished areas sit outside the gross living area entirely.
Inside, the appraiser walks through every room. Finished and unfinished spaces alike, including basements, attics, and crawl spaces if they exist. They note the condition of the foundation, walls, flooring, and major systems, looking for both the quality of finishes and signs of deferred maintenance like water stains, cracked drywall, or sagging floors. Photographs document each primary room and any feature that meaningfully adds or subtracts value. This visual survey produces the raw data used in the comparison that follows.
Despite a common belief, Fannie Mae does not require utilities to be turned on during the inspection.2Fannie Mae. Appraisal and Property-Related Having them on helps, because it lets the appraiser confirm plumbing, electrical, and HVAC systems function and avoids follow-up questions from the lender.
How the Value Is Calculated
Sales Comparison Approach
This is the primary method for residential property. The appraiser selects at least three comparable properties that have sold recently in the same market area. Fannie Mae’s guidelines call for sales that closed within the last 12 months, though the most recent sales aren’t always the best comparables if they require heavy adjustments.3Fannie Mae. Comparable Sales In rural areas with limited activity, older sales can be used if the appraiser explains why.
Each comparable is then adjusted dollar-for-dollar to account for differences with your home. If a comp has an extra bedroom the appraiser values at $10,000, that amount is subtracted from the comp’s sale price. Similar adjustments apply to lot size, garage capacity, updated kitchens, and other features. The goal is to make each comp look as close to the subject property as possible on paper, so the adjusted prices converge on a defensible value. When describing how far each comp sits from the subject, the appraiser reports the straight-line distance in miles with a directional indicator.3Fannie Mae. Comparable Sales
Cost Approach
The cost approach answers a different question: what would it cost to rebuild this structure from scratch at today’s labor and material prices, minus depreciation, plus the value of the land underneath. This method carries the most weight for newer construction, where depreciation is minimal and comparable sales may be scarce. For older homes, it serves as a secondary check.
Income Approach
For rental properties and investment purchases, the income approach estimates value based on what the property can earn. The appraiser applies a gross rent multiplier or a capitalization rate to the property’s income stream. Most owner-occupied home appraisals don’t lean on this method, but it becomes central for duplexes, fourplexes, and other income-producing properties.
Once all applicable methods are complete, the appraiser reconciles the results by weighting whichever is most relevant to the property type. For a typical single-family home, the sales comparison approach almost always dominates the final conclusion.
The Appraisal Report
Most conventional residential appraisals are delivered on Fannie Mae Form 1004, the Uniform Residential Appraisal Report.4Fannie Mae. Appraisal Report Forms and Exhibits The report includes a detailed comparison grid showing each comparable and its adjustments, a location map, a floor plan sketch, photographs taken during inspection, and a section on neighborhood characteristics and market trends. The appraiser signs a certification confirming their state license and adherence to the Uniform Standards of Professional Appraisal Practice.
The lender reviews the report first to decide whether the value supports the loan amount and meets the required loan-to-value ratio. Federal regulations then require the lender to give the borrower a copy of the completed appraisal promptly upon completion, or at least three business days before closing, whichever comes first. You can waive that timing and agree to receive the copy at or before closing, but the waiver itself has to be obtained at least three business days in advance.5eCFR. 12 CFR 1002.14 – Rules on Providing Appraisals and Other Valuations Read the report carefully for factual errors about the property’s features, room counts, or condition. Mistakes here can directly suppress the value.
Cost and Who Pays
A standard single-family residential appraisal typically runs between $300 and $600, though prices vary by location, property complexity, and loan type. Rural properties or homes with unusual features tend to cost more because the appraiser needs extra time to find suitable comparables. FHA and VA appraisals often carry slightly higher fees because of the additional safety and habitability checks involved.
The buyer almost always pays. Lenders usually collect the fee upfront with the loan application, though it sometimes gets rolled into closing costs. The fee is generally nonrefundable even if the deal falls through, because the work has already been performed.
How to Prepare
Gathering a few documents before the appointment saves time and can help the appraiser reach a more accurate figure. Property records from your county assessor or recorder’s office confirm lot size, legal boundaries, and tax information. A list of capital improvements you’ve made over the past several years gives the appraiser hard evidence that major systems have been updated. If you replaced the roof, upgraded the electrical panel, or remodeled a bathroom, pull together the receipts and permits. Appraisers can only value what they can verify, and documentation turns “we redid the kitchen” into a measurable adjustment.
On the physical side, make sure every room is accessible. Secure pets, clear clutter away from walls and flooring, and keep your renovation paperwork in one folder so you can hand it over during the visit.
FHA and VA Loans Add More Checks
If the loan is backed by the Federal Housing Administration, the appraiser performs a safety and habitability check on top of the standard inspection. Items flagged include steps without handrails, broken windows and doors, and blocked exits. For homes built before 1978, the appraiser inspects all interior and exterior surfaces for chipping, flaking, or peeling paint that may indicate lead-based paint hazards.6HUD. Valuation Analysis for Single Family One- to Four-Unit Dwellings Problems found during an FHA inspection become required repairs before the loan can close.
VA appraisals follow their own minimum property requirements. The home must have adequate heating, a continuous supply of potable water, functioning electricity, and proper sewage disposal. Crawl spaces must be clear of debris and properly vented. The roof must prevent moisture from entering and show reasonable remaining useful life. Any nonresidential use must remain subordinate and cannot exceed 25 percent of the total floor area.7VA. Basic MPR Checklist
When a Full Appraisal Isn’t Required
Not every mortgage requires a traditional full-interior appraisal. Fannie Mae offers several alternatives when its automated underwriting system determines value can be reliably established through other means.
- Value acceptance, formerly called an appraisal waiver, where the lender accepts the estimated value without any appraisal at all. Fannie Mae raised the maximum loan-to-value ratio for purchase loans on primary residences and second homes from 80 percent to 90 percent.8Fannie Mae. Fannie Mae Announces Changes to Appraisal Alternatives Requirements
- Value acceptance plus property data, similar to a waiver but with a third-party inspector collecting property data that the lender submits to Fannie Mae. Eligible up to program LTV limits.8Fannie Mae. Fannie Mae Announces Changes to Appraisal Alternatives Requirements
- Desktop appraisal, where a licensed appraiser develops the value opinion without visiting the property, relying on public records, MLS data, and sometimes a prior appraisal.9Fannie Mae. Hybrid and Desktop Appraisal Forms Quick Reference
- Hybrid appraisal, where a third-party inspector or a virtual inspection tool collects interior and exterior data and the appraiser completes the valuation remotely.9Fannie Mae. Hybrid and Desktop Appraisal Forms Quick Reference
Lenders see whether a transaction qualifies through Fannie Mae’s Desktop Underwriter system. You can’t request a waiver yourself; it’s offered based on loan characteristics, property data, and the lender’s risk profile. FHA and VA loans generally still require a full on-site appraisal.
If the Appraisal Comes In Low
A low appraisal is one of the most common deal-breakers in real estate. Because the lender bases the loan amount on the appraised value or the purchase price, whichever is lower, the gap becomes the buyer’s problem. You generally have three options: negotiate a lower price with the seller, pay the difference out of pocket in cash, or walk away if your contract includes an appraisal contingency.
An appraisal contingency is a clause in the purchase contract that lets you exit without losing your earnest money deposit if the property appraises below the agreed price. Buyers in competitive markets sometimes waive this to make their offers more attractive, which means they’re on the hook for any shortfall. That can be an expensive risk if the appraisal comes in $20,000 or $30,000 short.
Requesting a Reconsideration of Value
If you believe the appraisal contains errors or missed relevant comparable sales, you can request a Reconsideration of Value. Federal interagency guidance issued in 2024 formalized this process, defining an ROV as a request from the lender to the appraiser to reassess the report based on deficiencies or new information that may affect the value conclusion.10Federal Register. Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations The request goes through your lender, not directly to the appraiser.
To build a strong case, gather comparable sales the appraiser didn’t use, correct any property characteristics that were reported inaccurately, and provide documentation of features or improvements that may not have been considered. There’s no guarantee the appraiser will change the value, and vague complaints that the number is too low won’t accomplish anything. The evidence needs to be specific: a comparable sale at a higher price that the appraiser overlooked, or an error in the square footage or room count that affected the adjustments. This is where having renovation permits and receipts organized before the appraisal pays off, because rebuilding that documentation under a closing deadline is much harder.
Pressure on the Appraiser Is Illegal
Federal law makes it unlawful for anyone with a financial interest in the transaction to coerce, bribe, or influence an appraiser for the purpose of pushing the appraised value in any direction. Under 15 U.S.C. ยง 1639e, the statute also prohibits withholding payment as leverage and bars any appraiser from having a direct or indirect financial interest in the property or transaction they’re appraising.11Office of the Law Revision Counsel. 15 USC 1639e – Appraisal Independence Requirements A lender, borrower, or real estate agent can ask the appraiser to consider additional comparables, provide more detail supporting a conclusion, or correct factual errors in the report. The distinction is between providing relevant information and pushing for a number. If a lender or agent pressures you to find an appraiser who will “hit the number,” that’s worth reporting to your state’s appraisal licensing board.