What Is Appraisal?
An appraisal is a licensed professional's independent opinion of a property's market value, ordered by a lender to confirm the home is worth at least the loan amount before approving financing.
Appraisal in plain English
An appraisal is a licensed appraiser's written opinion of what a home is worth. For a purchase loan, the lender orders it to make sure the home supports the amount being borrowed.
Most appraisals involve an inspection of the home and a comparison with recent sales of similar nearby homes, adjusted for differences in size, condition and features.
Try it: Appraisal with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
Appraisal gap: four ways to handle a low appraisal
Lenders base the loan on the lower of the price and the appraisal. When the appraisal is lower, someone has to cover the difference.
- Appraisal gap
- $20,000
- Price is above the appraisal
- Planned loan and cash
- $336,000
- $84,000 cash planned
- Cover the gap in cash, keep the LTVExtra cash: $16,000 · LTV 80.0%
Same loan-to-value as planned; all of the extra comes from your savings.
- Keep the planned loanExtra cash: $0 · LTV 84.0%
Less extra cash, but the LTV rises - it may add mortgage insurance or need lender approval.
- Split the gap with the sellerExtra cash: $6,000 · LTV 80.0%
Seller lowers the price by half the gap; you cover the other half.
- Price reduced to the appraisalExtra cash: $4,000 less · LTV 80.0%
Only if the seller agrees, or the contract's appraisal contingency gives you that right.
Show the numbers as a table
| Option | Price | Loan | Cash for price | Extra cash | LTV |
|---|---|---|---|---|---|
| Cover the gap in cash, keep the LTV | $420,000 | $320,000 | $100,000 | $16,000 | 80.0% |
| Keep the planned loan | $420,000 | $336,000 | $84,000 | $0 | 84.0% |
| Split the gap with the seller | $410,000 | $320,000 | $90,000 | $6,000 | 80.0% |
| Price reduced to the appraisal | $400,000 | $320,000 | $80,000 | −$4,000 | 80.0% |
Formula
Appraisal gap = Contract price − Appraised value (if positive)LTV = Loan ÷ Lower of price and appraised value × 100Assumptions
- Closing costs are left out; they do not change the comparison.
- Keeping the planned loan raises the LTV; the lender must approve it and mortgage insurance may apply above 80%.
- An appraisal contingency or appraisal-gap clause in the contract decides who must act.
The home-buying timeline, step by step
A typical financed U.S. purchase. Open a step to see what happens, the money involved and the usual timing. Your contract sets the real deadlines.
A lender reviews your credit, income and assets and states how much it is prepared to lend.
Timing: Before you search; letters are often valid for about 60 to 90 days.
Terms: pre approval, dti, credit score
You compare homes against your budget, including taxes, insurance and HOA dues - not just the price.
Timing: As long as it takes.
Terms: piti, comparable sales
You propose a price, contingencies, deadlines and any seller concessions; the seller accepts, counters or rejects.
Timing: Responses usually come within a day or two.
Terms: counteroffer, contingency, seller concession
Both sides sign the purchase contract, which sets every deadline that follows.
Timing: Day 0 of the contract.
Terms: under contract, contingency
You pay the good-faith deposit to the neutral holder named in the contract.
Money: Often about 1% to 3% of the price, by local custom.
Timing: Usually within a few business days of signing.
Terms: earnest money, escrow
A home inspector checks the condition; you can negotiate repairs or credits, or cancel within the inspection contingency.
Money: Inspection fees are paid up front.
Timing: Commonly 7 to 14 days after signing.
The lender's appraiser estimates value. A low appraisal can create a gap you must cover or renegotiate.
Money: The appraisal fee is often paid at application.
Timing: Commonly 2 to 3 weeks after signing.
Terms: appraisal, appraisal gap, appraisal contingency
The lender verifies everything and issues conditions, then "clear to close". Avoid new debt or large unexplained deposits.
Timing: Runs in parallel with the steps above.
Terms: underwriting, clear to close, rate lock
You confirm the home is in the agreed condition and any repairs are done.
Timing: Usually within a day or two of closing.
Terms: final walkthrough
You sign the loan and transfer documents and pay cash to close; you receive the keys. The Closing Disclosure arrives at least three business days before.
Money: Cash to close is due, usually by wire.
Timing: Commonly 30 to 45 days after signing for a financed purchase.
Terms: closing, cash to close, closing disclosure
Timing ranges are common practice, not rules. Cash purchases can close in one to two weeks.
Why it matters
An appraisal answers a different question than a home inspection: an appraisal opines on value for lending purposes, while an inspection assesses physical condition.
If the appraisal comes in below the contract price, the lender lends on the lower value, which can mean more cash at closing, a renegotiated price or - with an appraisal contingency - cancelling.
What it means for you
Who pays?
Usually the buyer.
What buyers should know
Check the comparable sales in the report; errors in square footage or features happen.
What sellers should know
Providing your agent with a list of recent improvements can help the appraiser value them.
Common mistakes
- Treating the appraisal as a substitute for an inspection.
- Offering well above recent sales without a plan for a low appraisal.
- Not reviewing the appraisal copy you are entitled to receive.
Inspection vs. Appraisal
Assesses a property's physical condition — structure, systems, and major components — for the buyer's benefit.
Provides an opinion of a property's value for lending purposes, ordered by the lender to confirm the loan amount is justified.
Full comparison: Home Inspection vs Appraisal, with a worked example →
Compare and common questions
Appraisal: frequently asked questions
Who orders and pays for the appraisal?
The lender orders it through an independent process; the buyer usually pays for it, often upfront or at closing.
Can I challenge a low appraisal?
Yes. You can ask the lender for a reconsideration of value, supported by comparable sales the appraiser may have missed, though the value may not change.
Do I get to see the appraisal?
Yes. Lenders must give you copies of appraisals and other valuations they obtain for your loan.
Related Terms
Where it fits
- Buying a home, Appraisal: next, Appraised Value.
Recommended next step
See how the two reports differ and what each can change.
Home inspection vs appraisal →Sources and review
- Why did I receive different valuations during the mortgage loan application process?, Consumer Financial Protection Bureau. Supports: Appraisals are done by licensed appraisers comparing local sales, and lenders must provide copies of valuations.
Where this applies: United States. Federal rules give borrowers copies of valuations; appraisers are licensed by states.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
Understand a property's costs and risks before you make an offer
Use the free calculator for your own numbers, or analyze a specific home before you commit.
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