Real Estate

What Is a Home Appraisal and How Much Do They Cost?

Last Updated on March 29, 2023 by Mark Ferguson

When you get a loan on a house, most lenders will require an appraisal. A home appraisal is a report that assigns a value to the home and tells the lender that the house is worth what you’re paying for it. If the appraisal comes in lower than the contract price or the appraiser requires repairs to be made, it can kill a deal and cause a lot of frustration. Appraisals and the guidelines appraisers must follow can also be very confusing to people who are not familiar with them. I hope this article can shed some light on what appraisals are, how they are completed, and how to challenge them.

Why do banks require appraisals?

Banks and mortgage companies love to lend money on houses because houses are a more secure debt than cars or businesses. If the borrower defaults on a house, the bank can foreclose on the home and take possession. However, foreclosures are not cheap to complete for the bank after you factor in paying the attorneys, selling costs, and lost interest. To reduce the amount of money a bank loses from foreclosures, they first want to lend money to qualified buyers, and second, the bank wants to make sure any house they lend on is worth what the borrower is paying.

If banks did not confirm values, the borrower could buy a house for $50,000 more than it is worth. If the home was foreclosed on, the bank would not only lose money on lost interest, selling costs, and attorneys fees, but they would also have to sell the house for $50,000 less than they thought it was worth (assuming prices did not go down since the loan was made).

An appraisal is done by a licensed appraiser and is meant to confirm what the buyer is paying is at least as much as the home is worth.

What is a home appraisal?

An appraisal is a valuation of a home or property and is done by a licensed appraiser. I used to complete many broker price opinions (BPOs) as a real estate agent, but a BPO is not an appraisal and not as detailed. BPOs are used to determine market value for banks who may be trying to complete a short sale or for banks who need to know the value of homes that are going into or have been foreclosed. BPOs are usually not used to determine the value of houses for new loans.

To complete an appraisal, the appraiser will view the entire home, take pictures, measure the house, inspect the condition of the house, and complete a report that values the home. The report consists of sold comparables, which are houses that have sold recently and are the most similar to the house being appraised (subject home). The appraiser has certain guidelines they should follow regarding the comparables that are used to value a house. Sold comps should:

  • Have sold in the last six months.
  • Have above ground square feet within 20 percent of the subject.
  • Have similar basements (finished or unfinished if applicable).
  • Have been built within a certain time frame of the subject (usually ten years).
  • Be in a similar condition as the subject.
  • Have a similar bedroom and bath count.
  • Be in the same neighborhood or within a certain distance of the subject (usually one mile).

If there are not enough sold comparable properties to meet all these guidelines, the appraiser can expand his criteria and make adjustments. If a house is in a rural area than the appraiser may have to look within ten miles of the subject for comps or look for homes within 20 years of age because there are no other comps. When an appraiser makes adjustments, they will add or subtract value from the comparable properties for different characteristics.
The video below goes over appraisals in detail.

How much does an appraisal cost?

The cost of appraisals can vary based on the location, the type of the loan, and the type of property. Here is a very general list of guidelines on the cost of appraisals:

  • Appraisals on single-family homes: $400 to $800
  • Appraisals on 2 to 4 unit multifamily homes: $600 to $1,000
  • Appraisals on large multifamily properties: $1,000 to $10,000
  • Appraisals on commercial properties: $600 to $10,000

There is no set price for an appraisal, and the price varies based on the size of a property and the complexity. I own a 68,000-square-foot strip mall, and we recently needed an appraisal for a refinance. Our lender gave us two bids; the first was to be completed in 3 weeks for $8,000 or another to be completed in 6 weeks for $3,000. We were not in a hurry, so we took the cheaper option.

How long does it take to get an appraisal?

The time it takes to get an appraisal completed also varies greatly! In Colorado, we had a shortage of appraisers and a very hot real estate market. It was taking 3 to 4 weeks to get an appraisal completed, which slowed down the buying and selling process. In a normal market with enough appraisers, it should take from 1 to 2 weeks to get an appraisal done. Again, the more complicated the property, the longer it will take to get the appraisal completed.

Who pays for the appraisal?

Anyone can order an appraisal on their own and pay for it. I would not suggest sellers get an appraisal to value their home as good real estate agents will do it for free and are usually more accurate—that is, unless the seller is looking to refinance the property and the bank is requiring an appraisal.

During the transaction to buy and sell real estate, the buyer usually pays for the appraisal. The buyer’s lender will order the appraisal and pay the appraiser, but if the deal falls apart, the lender may require the buyer to pay them back for the appraisal cost. in some cases, the buyer may be able to ask the seller to pay for closing costs, and that money could pay for the appraisal. You can learn more about the buying and selling process here.

How do adjustments work on an appraisal?

When an appraiser uses comparables that are different from the subject, the appraiser has to subtract or add value to the comp. If a comparable sold for $150,000 but is superior to the subject by $10,000, then the comparable value would be $160,000. In the report, the $160,000 adjusted value of the comparable would indicate the subject house is worth $160,000. To come up with adjustments, the appraiser will compare the important characteristics of the subject and comparable sales (usually at least three comp sales are used). If the subject has 3 bedrooms and the comparable has 4 bedrooms, the appraiser may deduct $4,000 from the comparable because it is superior to the subject. If the comparable characteristic was inferior to the subject, then the adjustment would be positive.

Below is an example of some adjustments that might be used by an appraiser:

Subject                                                  Comparable              Adjustment to Comp

1,500 square feet                                  1,700 square feet            -$6,000

3 bedrooms                                           4 bedrooms                     -$3,000

2 baths                                                    3 baths                             -$2,500

2-car attached garage                           1 car attached garage     $4,000

1,000 sq ft unfinished basement      no basement                     $7,500

Built 1979                                              Built in 1988                  – $5,000

Total adjustment                                                                            -$5,000

If this comparable home had sold for $150,000, the adjusted sales price used to value the subject would be $145,000. The appraiser would then do the same thing with at least two more sales comps and come up with a value for the subject using these values.

Do appraisers use active comps in appraisals?

One frustrating aspect of appraisals is appraisers will primarily use sold comps to value a house. Sold comps must be used because you can list your house for whatever price you want, but you won’t know what it is worth until it sells. If an appraiser used active comps to value homes, the value could vary greatly based on if the asking price is close to what the home is really worth. An appraiser may use an active comp once in a while if there are very few comps available to help justify value. The active comp is used to supplement the sold comps not be the primary focus.

What happens if an appraisal comes in less than the contract price?

Banks want the appraisal to come in at or above the contract price to confirm the value of the home they are lending on. Banks will lend on many different loan-to-value ratios. Some loans like VA require zero down, while others like conventional investor loans will require 20 or 25 percent down. The bank will base the loan to value ratio on the lower of the contract price or the appraisal. If the contract price is $100,000, but the appraisal comes in at $90,000, the bank would base the loan amount on the $90,000, not the $100,000. With a 20 percent down payment, the loan amount would be $72,000 instead of $80,000 in this scenario. With no money down, the loan amount would be $90,000 instead of $100,000.

As you can see, the appraised value can greatly affect many buyers’ ability to buy a home and the money they need to purchase the home. Low appraisals have killed many deals when the buyer was not willing to bring more money to closing or the seller was not willing to lower the price.

Do FHA appraisals stick with a home?

When a buyer uses a conventional loan to buy a house, the lender will perform a conventional appraisal. If the conventional appraisal does not come in at value, a different lender can order a new conventional appraisal, which may come in at value. If the buyer is using an FHA loan, the appraisal sticks with the home. That means for 4 months, any FHA loan will have to use that same appraisal. If an FHA appraisal comes in low on a home and the sellers will not reduce the price, then the sellers will most likely not be able to sell the home to any other FHA buyers for at least four months (unless they lower the price to the FHA appraisal amount).

In some cases, a lender will also require that two appraisals be done. I flip many houses, and lenders get scared because the price I sell houses for is much more than the price I buy houses for. When the lender or underwriting sees a huge price difference, they usually want a list of the repairs I made and a second appraisal to confirm the value.

Why are appraisal guidelines so strict?

A while back, the United States went through a massive housing crisis. Much of the housing crisis was caused by inflated values, and some of those values were high due to lender fraud. In my town of Greeley Colorado, we had a few instances of fraud.

  • The builder builds a home.
  • The Realtor for builder finds an unknowing buyer and promises low payments ($500 on a $250,000 purchase).
  • The Realtor, builder, and lender all convince the buyer to use a risky ARM loan where payments will more than triple in one year (many times the buyer does not know how much more the payment will be).
  • They all sell the home for at least 20 percent more than it is worth, and the buyer agrees because of the low payment.
  • The appraiser is in on the fraud too and inflates his appraisal to confirm the value.

In a couple of cases like this, hundreds of homes went through foreclosure, and many people went to jail. In order to stop this type of fraud from happening again, appraisers were scrutinized for any values that may appear high. A few things appraisers learned to avoid in appraisals to avoid scrutiny are:

  • Mentioning a rising market for prices because this could justify higher values.
  • Coming up with a value higher than any sold comps.
  • Using active comps to value a home higher.

Basically, anything that could be a judgment call to raise appraisal values is avoided by appraisers because they don’t want to be investigated for fraud. This makes it tough on buyers, especially in a rising market, because the sold comps may not be as high as their contract price.

Can an appraisal require repairs to be made?

A low appraisal value can mess up a house sale, but an appraisal can also call out repairs to be made. On most loans, the lender will require a home to be in livable condition. That means all the major systems must work or be in good condition: plumbing, heating, electrical, roof, sewer. The appraiser will also make sure there is nothing dangerous like peeling paint (could be lead-based paint and poisonous), holes in the walls or floors, broken windows, or mold.

If you are trying to sell or buy a house that has any of these issues, the appraiser may require them to be repaired before closing. The seller could have the items repaired, or in some cases, the buyer may be willing to make the repairs before closing (on REO and HUD homes, it is usually not an option for the buyer to make repairs). If the seller can’t or won’t make repairs, the deal will usually die and the house will have to be sold with a loan that does not require repairs or for cash.

Unlike an inspection, the seller cannot simply agree to lower the price in lieu of making the repairs. The lender and appraiser will require the repairs be made before closing unless the repairs can be escrowed.

How a low appraisal cost me $14,000

I bought a house flip for $140,250 and had it under contract to sell for $222,500. Even though this house was the cheapest property for sale in the town it was located in, the appraisal came in at $208,000. We did our best to help the appraiser come in at value, and we challenged the appraisal with the lender, but none of it did any good. Not only did the appraiser cost me over $14,000, but we found out during the buyer’s inspection that the sewer line needed to be replaced, and that cost another $5,300. What should have been a profit of $35,000 turned into a profit of less than $20,000. It was not my best flip, but I still made money, even with the problems that came up.

Why didn’t I put this house back on the market and go for a new buyer?

$14,000 is a lot of money to leave on the table, but I decided to lower the price and continue with the sale. There are a number of factors I considered when deciding whether I should put this home back on the market:

  • The buyers were using an FHA USDA loan, which meant they put no money down. Because it was an FHA loan, if I sold to any other FHA buyers in the next 6 months, they would also use the same low appraised value. I would have to sell the house to a conventional buyer, which shrinks my buyer pool.
  • When you put a home back on the market, buyers wonder what happened. I would have to tell buyers that the appraisal came in low, and even if the low value did not bother buyers, they would have to worry about their appraisal coming in low as well. The low appraisal could cause me to get a lower offer price if I put the home back on the market.
  • By canceling this contract and trying to find a new buyer, I would have to hold the property at least one more month and most likely longer. It costs quite a bit of money to hold flips since I have to pay taxes, insurance, and mortgage payments. With my financing on this property, it would cost me about $1,500 a month to hold it.
  • I had 19 flips going at once when this happened, and I have to sell houses quickly to handle that many properties. If I only had one flip I was working on, I might try to get a new buyer, but for me, I wanted to sell this house and focus on other projects.

There is a chance I could have made more money by putting the home back on the market, but there is also a chance I would not. I would have to find a conventional buyer who was not bothered by the low appraisal, nd who offered enough to make up for the carrying costs. It made more sense for me to sell the house faster and not risk the time it would take to find a new buyer.

Did I challenge the appraisal?

We tried to challenge the appraisal, but the appraiser would not budge on his price. You have to ask the lender to challenge the appraisal, and they need a good reason to make the request. They also require more comparable properties to present to the appraiser that were not used in the original report. One problem with this property was that it was in a small town and there were few sold comparable properties available. The appraiser used 5 sold comps, and all of them had sold over 5 months prior to the appraisal. In Colorado, we have one of the highest appreciating markets in the country, and prices change fast in 5 months. Prices in the area have been rising 10 to 20 percent a year.

Unfortunately, this appraiser said we were in a stable market and did not make any adjustments for using old comps. We tried to argue that fact, provided three new comps that were not used, and hoped the appraiser would come up in value. He did not. He said the comps we sent could not be used because they had basements, and the property we were selling did not have a basement (I guess it did not matter that two of the comps he used had basements). He did not even provide an answer to why he said we were in a stable market.

Here are before and after videos of the property:

How can you prevent low appraisals?

I am a real estate agent, and I have to deal with low appraisals all the time. I have had low appraisals on many of the houses I am selling or for buyers that I represent. However, there are many changes we have made over the last couple of years that have helped reduce the number of low appraisals we see.

Give the appraiser comps to use

I was skeptical about doing this because I did not know if it was ethical or legal to give comparable sold properties to the appraiser. When I do broker price opinions for banks, I am not allowed to take comparable sold properties from the listing agent or anyone involved in the transaction.

However, the real estate commission in Colorado recommends agents provide comps for the appraisers. When we see an appraisal is scheduled we provide as many similar sold properties as we can to the appraiser. I tell the appraiser that he is welcome to use these if he would like to, but I never pressure him or her into using my comps. I make sure the comps support the value that our contract is for, and if there are any abnormalities (distance from property, SQFT etc), I explain in detail to the appraiser why I chose those properties. Most appraisers are very grateful, and this has helped values come in much higher.

We tell the appraiser what repairs have been done to the home

This lets the appraiser know the home may be in better condition than other similar sales in the area he may use as comparables. It also helps to justify the price on flips I complete when I sell it for much more than I bought it for.

Be prompt returning calls or emails from the appraiser

I try to be as professional as possible with all appraisers. I don’t want to give them any reason to get annoyed at me or the property. If the appraiser calls me, I will call back as soon as I can or email them back right away. If the utilities have to be on, I make sure they are on or explain why they can’t be turned on so he does not have to make multiple trips back to the house.

Make sure the house is clean and looks great

First impressions mean a lot to anyone. If your house is completely remodeled but has junk all over or is dirty and cluttered, the appraiser may miss all the remodeling work. Present the house to the appraiser like you would a regular buyer.

If you treat the appraiser right and give him comps that help justify the value, you will have much more success getting appraisals to come in at value. If you are not an agent, make sure your agent is doing these things for you.

Can you challenge a low appraisal?

Even after sending in comps, we still have some appraisals come in low. If an appraisal comes in at less than the contract value on a home, you can ask the lender to challenge the appraisal. Usually, there has to be something wrong with the appraisal, and you need some really good comps to prove the value should be higher. I had a VA appraisal done on a house a couple of weeks ago for some buyers. The appraisal came in $7,000 low on a new construction home. Luckily there were some major flaws with the report and we were able to get the appraisal raised.

  • The appraiser used a house that was 16 years old and over 2 miles away from the subject.
  • The appraiser used a house that was 11 years old and over 1.5 miles away from the subject.

The house that was being appraised was brand new and in a suburban area with many new construction sold comparables available in the same neighborhood. I have no idea why the appraiser used these comps when so many other properties had sold in the same neighborhood in the last six months. I provided six comps that were very similar to the subject in price, age, and location. The lender challenged the appraisal using those comps.

There is no guarantee the appraiser or appraisal management company will change the value, even with gross errors in a report, but it is worth a try. I have had other appraisals with worse values that were not changed, and on one occasion, an appraiser raised his value by $30,000 after we sent him comps. On this particular deal, the appraisal was not brought up to the full contract price, but the value was raised $3,000 and the seller agreed to lower the price to make it work for the buyers.

When you challenge an appraisal you (or your real estate agent) have to be able to provide comps that clearly support value and are superior to the comps used in the appraisal. Or, you have to find facts that are wrong in the appraisal. If the appraiser said the subject only had a one-car garage and it had a two-car garage, that is a fact that can be challenged.

If a low appraisal comes in, don’t rely on the lender to look it over and decide if they want to challenge it. Look it over, or if you are not a real estate agent, have your agent look it over closely. Look for any facts that may be wrong or anything wrong with the comps used. Was distance too far, age of the sale too old, square footage off, a finished basement not included? In some cases, the value is just low and there isn’t much you can do about it.

How do you handle an appraisal that requires repairs to be made on a property?

Not only can appraisals come in under value, but they can also require repairs to be made before closing. When you are using owner-occupant loans with little money down, they will all require the house to be in livable condition. That means all the major systems must be functioning and in decent condition: heat, electric, roof, plumbing. There can’t be broken windows, holes in the walls, mold, chipping paint, or exposed wires. When you are buying a house, make sure you know what condition the lender will require the home to be in before you make an offer. Some sellers will make repairs on issues that hold up financing, and others will not.

HUD will make no repairs on anything unless it is a safety issue. However, HUD will allow FHA buyers to escrow repairs. Other REO sellers like VA, Fannie Mae, and Freddie Mac will make some repairs, but it is all done on a case-by-case scenario. Traditional sellers may make repairs as well depending on how much money they have and what the repairs are. Don’t expect a short sale owner to make any repairs on a property.

I think it is best to ask the seller to make any repairs that you know will be needed in the contract. If you want to buy a house and you know the appraiser will ask for certain items to be repaired, ask the seller to fix those upfront. If you ask for repairs to be made upfront and the seller won’t agree, you won’t waste weeks of time, an appraisal fee, and an inspection fee. There may be some issues you can’t see or know about until an inspection or the appraisal, but ask for the seller to make repairs that you know will be a problem in the beginning.

If repairs are required and the seller will not fix them before closing, there are a couple of options. The first thing you can do is ask your lender if the repairs can be escrowed. That means the buyer or seller will pay for the repairs, but they will not be completed until after closing. The title company holds the money to be paid to the contractor until the work is done. If the repairs cannot be escrowed, you may be able to switch to an FHA 203k loan if you are buying as an owner occupant. The 203K loan allows buyers to purchase a home in bad condition, build money into the loan for repairs, and have the repairs done after the closing.

If you are selling a house and plan to sell to owner-occupant buyers, make sure anything an appraiser may call out as needing to be fixed is repaired before the home is listed. If buyers see items that need repaired, they may just move on to the next house instead of asking the seller to fix them. If you can’t make repairs, do not accept an offer that will require the repairs to be made.


If you have appraisal issues, don’t give up hope! I know many lenders will not pursue these avenues unless they are asked. Many real estate agents will not pursue these options either because they don’t know they exist. In some cases, there is nothing you can do about a low appraisal or one that requires repairs, but it doesn’t hurt to try to get the value raised. Remember, appraisal requirements are limited to owner occupants. Many investor loans will have the same repair and value requirements as well.

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