What to know about Appraisals
How Home Appraisals Work When Buying a Home
If you’re buying a home with a mortgage, the appraisal can be one of the most important steps in the entire transaction.
Before diving in, a quick note: I’m not a licensed appraiser. However, as a real estate agent I try to understand every step of the process so I can guide my clients properly. If you ever need a formal valuation or detailed appraisal advice, it’s best to consult a certified appraiser.
Understanding how the appraisal process works can help buyers avoid surprises and navigate the purchase with confidence.
Here is what to know about the Appraisal Process:
1. Appraisals Are Usually Required When You Have a Mortgage
Most home appraisals happen because a lender requires them.
When a bank lends money to purchase a property, they want confirmation that the home is actually worth the amount being borrowed.
The lender orders the appraisal through a third-party appraisal management company. The appraiser then evaluates the property and determines its estimated market value.
If you’re purchasing a home with cash, an appraisal is usually optional. Some buyers still choose to order one for peace of mind, but lenders generally only require them when financing is involved.
2. What Happens if an Appraisal Comes in Low?
The appraisal compares the home’s estimated value to the purchase price written in the contract.
There are two common outcomes.
Appraisal at or above the purchase price
If the appraisal matches or exceeds the purchase price, the transaction typically moves forward without issue and the lender continues processing the loan.
An added bonus of an appraisal above your offer price is some built-in deal equity!
Appraisal below the purchase price
If the appraisal comes in lower than expected, buyers and sellers may need to renegotiate.
Possible solutions include:
The buyer bringing additional cash to closing
The seller lowering the purchase price
Meeting somewhere in the middle
The buyer canceling the contract if an appraisal contingency exists
In competitive markets, buyers sometimes include an appraisal gap clause, meaning they agree to cover a certain difference if the appraisal comes in low.
3. The Three Main Methods Appraisers Use to Value a Home
Appraisers don’t simply choose a number. They evaluate properties using several valuation methods.
Can Buyers or Sellers Help an Appraisal?
While no one can control the final value of an appraisal, there are ways to ensure the property is evaluated accurately.
Things That Can Help
Providing relevant comparable sales
Permitted upgrades and renovations (most permitting records can be found on https://sfplanninggis.org/pim/)
A well-maintained property
Clear documentation of improvements
Easy access for the appraiser
Things That Usually Don’t Affect Value
Some cosmetic details have little impact on appraisal value.
These typically include:
Furniture staging
Interior décor
Temporary styling improvements
Appraisers focus primarily on market data and comparable sales rather than presentation.
The Bottom Line
A home appraisal is designed to answer a simple question for the lender:
Is the property worth the amount being borrowed?
While real estate agents help determine pricing based on market conditions and buyer demand, the appraiser verifies that value using comparable sales, market data, and established valuation methods.
Understanding how the appraisal process works ahead of time can help buyers and sellers navigate a transaction with fewer surprises.
Thinking About Buying in San Francisco?
If you’re planning to buy property and want guidance on navigating the home buying process — from pricing strategy to appraisals — feel free to reach out.
Understanding the details of the transaction process can make a big difference when buying in a competitive market.
