A home appraiser determines if a house is worth what you agreed to pay by inspecting every part of the property inside and out. The appraiser looks at the building’s condition, compares your home to similar homes nearby that recently sold, and checks neighborhood details to give an unbiased value estimate. The federal law called FIRREA established a system in 1989 that requires all appraisers to follow the same professional standards, which means if an appraiser misses problems or makes mistakes, it can hurt the loan you’re trying to get, delay your home sale, or force you to pay more money out of your pocket. According to CoreLogic data, about 8% of home appraisals come in lower than the agreed-upon price, which creates a real problem for buyers and sellers.
What You’ll Learn in This Article
🏠 The three main ways appraisers judge your home’s value — from checking the building itself to comparing it with similar homes and understanding the neighborhood
💰 Exactly what costs more money — kitchen upgrades, roof conditions, structural problems, and the specific fixes needed for government-backed loans
🚨 Common mistakes homeowners make — like skipping maintenance, overpricing, and missing crucial repairs that kill deals
📊 How to challenge an appraisal if it comes in low — the new Reconsideration of Value process that lets you request a review
🛠️ Specific repairs you must make — especially if you’re using FHA, VA, or USDA loans, which have stricter requirements than conventional financing
The Federal System That Controls Appraisals
The U.S. government doesn’t let just anyone appraise homes. FIRREA established a strict regulatory system with three levels of control: federal oversight from the Appraisal Subcommittee, state licensing agencies in each state, and The Appraisal Foundation, which sets minimum standards. Every appraiser must follow the Uniform Standards of Professional Appraisal Practice (USPAP), which is like a rulebook that requires appraisers to be objective and honest.
Federal law also protects you by preventing lenders from pressuring appraisers to inflate values so bigger loans get approved. This means lenders can’t tell an appraiser “make it worth more,” and appraisers can’t secretly own interest in the property they’re valuing. If someone breaks these rules, they must be reported to your state’s appraisal board.
The key reason this matters: appraisals protect you from getting stuck with a loan for more than your home is actually worth. Lenders use the appraisal value to set how much money they’ll loan you. If the appraisal is lower than your offer price, the lender won’t give you as much money, and you’ll need to pay the difference yourself or renegotiate with the seller.
The Three Main Components of Every Appraisal
The Property Inspection: Exterior Details
An appraiser starts outside and examines every part of your home’s exterior before stepping inside. They measure the total land area and walk the property boundaries to confirm the size matches the paperwork. The appraiser takes notes on the foundation condition, looking for visible cracks, settling issues, or water damage that suggests structural problems beneath the surface.
The roof gets serious attention because problems here affect everything. Appraisers check for missing shingles, curling, damage, and the number of roofing layers. For government-backed loans, the roof cannot have more than three layers of shingles, which means if previous owners just added shingles on top instead of removing old ones, you’ll need to strip everything down and start fresh. The appraiser also looks at flashing around chimneys, gutters, and ventilation to spot signs of water leaks into the attic.
Curb appeal matters because it shows how well the property is maintained. The appraiser notes the condition of siding, paint, shutters, doors, and windows from the outside. They check the driveway surface type—whether it’s asphalt, concrete, gravel, or dirt—and look for cracks, holes, or uneven areas. Landscaping is evaluated too; an overgrown yard or dead trees suggest neglect, while trimmed bushes and mowed grass show care. The appraiser documents the garage type (attached, detached, or carport), condition, and whether the driveway can fit the number of cars claimed.
| Exterior Feature | What Matters |
|---|---|
| Foundation | Cracks, water damage, settling that affects structural integrity |
| Roof | Age, condition, number of layers, leaks, flashing problems |
| Siding and Paint | Peeling, chipping, water damage, needed repairs |
| Driveway | Surface type, cracks, proper drainage |
| Garage | Type, condition, door operation, space for vehicles |
| Landscaping | Overall maintenance, signs of neglect, hazard trees |
| Doors and Windows | Operation, condition, glass quality |
| Utilities and Drainage | Access, proper grading away from foundation, drainage systems |
The Property Inspection: Interior Details
Inside, the appraiser verifies room count and measures livable square footage, checking that what’s on paper matches reality. They open closets in bedrooms to confirm actual rooms versus just counting walls. The appraiser notes the number of bathrooms and the condition of fixtures, checking for leaks, outdated plumbing, or safety issues like missing handrails on interior stairs.
The appraiser evaluates the HVAC system (heating, ventilation, air conditioning), noting the type and age. They check whether the furnace works, test the air conditioning, and look for signs of required maintenance. Broken or very old systems hurt your appraisal value significantly because a buyer will need to budget for replacement, which costs thousands of dollars. The appraiser also inspects electrical and plumbing systems, looking for safety hazards like exposed wiring, inadequate outlets, or signs of failed repairs.
Visible defects are documented in detail. Holes in walls, cracked windows, stained ceilings, warped flooring, or peeling paint all get noted because they suggest the home needs repairs. The appraiser specifically looks for peeling paint in homes built before 1979 because it might contain lead, which requires professional removal for safety. Water damage shows up as stains, musty smells, mold growth, or warped materials—any of these signals bigger problems like leaks or foundation water intrusion.
The appraiser walks through each room with a checklist, noting built-in appliances, countertop materials, flooring type and condition, cabinet quality, and any upgrades like new kitchens or bathrooms. They look for energy-efficient features such as new windows, updated insulation, or solar panels because these add value. The appraiser notes basements and crawlspaces, checking for dampness, standing water, or mold that indicates drainage problems.
Comparable Sales Analysis: The Market Comparison
This is where the appraiser determines if your home price makes sense by comparing it to similar homes that recently sold nearby. The appraiser selects a minimum of three comparable sales (called “comps”) that closed within the past six months. These comparable homes should be similar in location, size, age, condition, number of bedrooms and bathrooms, and special features like pools or garages.
The appraiser looks at sales data from the Multiple Listing Service (MLS) and public records, noting each comp’s sale price, how long it sat on the market, and specific features. If one comparable home sold for $300,000 but had a newer roof while your home has an old roof, the appraiser makes adjustments to account for the difference. Each adjustment up or down explains why your home should be worth more or less than that specific comparable sale.
| Comparable Factor | Example Adjustment |
|---|---|
| Location difference | Home one block from highway might be worth 10-20% less due to noise |
| Roof condition | New roof adds $8,000-15,000 in value |
| Updated kitchen | Modern kitchen can add $15,000-30,000 |
| Additional bedroom | Each bedroom adds $20,000-40,000 depending on area |
| Garage vs. carport | Attached garage worth $5,000-10,000 more than carport |
| Recent renovations | Major updates can add 5-15% to overall value |
The appraiser must also consider the market area where the subject property is located. Market area is the geographic region where most competition and demand comes from—not just identical neighborhoods, but competing areas where similar buyers would shop. If few comparable sales exist in your exact neighborhood, the appraiser may use homes from slightly farther away but must explain this choice in the appraisal report.
What Hurts Your Home’s Appraisal Value Most
Structural and Foundation Issues
Foundation damage creates the biggest problem because it affects everything built on top of it. Appraisers look for visible cracks in foundation walls, uneven floors, doors that stick, or windows that won’t close properly because these signal serious underlying problems. Foundation damage can lower home value by 10% to 25% or more, and in some cases, it kills the deal entirely because lenders won’t approve loans on structurally unsound homes.
Water damage represents a close second. If the appraiser sees water stains on ceilings or walls, musty odors, visible mold growth, or warped flooring, they note it as a serious deficiency. Water damage signals future problems—wood rot, structural weakening, and mold spread—which are expensive and dangerous to fix. Wet basements or crawlspaces, even without visible mold, indicate drainage problems that will cost thousands to remedy.
Roof problems directly affect your appraisal because appraisers know that roof replacement costs $8,000 to $25,000 or more depending on home size. If the roof shows missing shingles, curling, sagging sections, or evidence of previous leaks, the appraiser will reduce the home’s value or require repairs before closing. For government-backed loans, multiple roofing layers trigger mandatory removal, turning a repair into a full replacement project.
Electrical and Plumbing Defects
Old or faulty electrical systems scare appraisers because of safety risks and cost to fix. Appraisers check for outdated fuse boxes instead of circuit breakers, lack of GFCI outlets in wet areas, insufficient electrical capacity, double-tapped breakers, exposed wiring, and ungrounded outlets. Any of these issues can trigger a requirement for a full electrical upgrade, costing $5,000 to $15,000 or more.
Plumbing problems get flagged when the appraiser notices leaks, slow drains, or outdated pipe materials. Old galvanized pipes corrode and need replacement, which is expensive. For government-backed loans, plumbing and septic systems must be in good working order, and any backup or failure will require repairs before closing.
Pest Damage and Infestation
Termites and other wood-destroying insects terrify appraisers because infestations can be hidden and widespread. The appraiser looks for mud tubes on foundation walls, hollow-sounding wood when tapped, small holes in wood with sawdust-like material, and discarded insect wings. Termite damage can weaken structural members, requiring expensive repairs or complete wood replacement in severe cases.
Lead-Based Paint
For homes built before 1978, chipping or peeling paint must be scraped and professionally painted because lead paint is a serious health hazard, especially for young children. If an appraiser finds lead paint violations, the seller must hire a certified lead remediation company to fix the problem, which costs $1,000 to $10,000 depending on the home size and paint condition.
Neighborhood and Environmental Factors
The appraisal gets lower when the neighborhood has negative factors. Homes near high-crime areas, low-rated schools, major highways, or airports appraise lower. A property one block from a freeway with extreme noise levels might be worth 10% to 20% less than identical homes several blocks away. Properties in FEMA-designated flood zones face appraisal reductions because flood insurance is expensive and flooding risk is real.
Neighborhood decline also matters—if property values in the area are dropping, recent foreclosures exist, or distressed homes are being sold far below normal prices, the appraisal will reflect these conditions. The appraiser considers whether the neighborhood is growing, stable, or declining, which affects both current value and future resale potential.
Three Popular Scenarios: Actions and Consequences
Scenario 1: You Have an Old Roof and No Comparable Homes with New Roofs
The Situation: You bought your home in 1998 and never replaced the original roof. You’re now refinancing or selling, and the appraisal comes in at $285,000. You expected $320,000 based on comparable homes, but those comps all had newer roofs replaced within the last five years.
| Action | Consequence |
|---|---|
| Appraiser documents original roof from 1998 in appraisal report | Appraiser adjusts value downward because roof replacement will cost $12,000-18,000 |
| Lender requires roof inspection before approving loan | If roof fails inspection, repairs are mandatory before closing |
| You get three quotes for roof replacement | Actual cost is $14,500, leaving $5,500 gap between your expected price and appraisal |
| You contact the appraiser about the value | For government loans, the appraiser cannot adjust value without actual repair completion proof |
| You replace the roof before closing | Appraisal may be re-ordered or updated, potentially increasing value by $10,000-15,000 |
The Consequence That Happens: The low appraisal creates a funding gap. If you’re buying for $320,000 but it appraises at $285,000, your lender will only finance 80% of the appraisal ($228,000), meaning you need to bring an extra $35,000 to closing. Alternatively, you and the seller renegotiate the purchase price down to match the appraisal.
Scenario 2: You Renovated Your Kitchen But Overestimated Home Value
The Situation: You spent $45,000 renovating your kitchen with granite countertops, new appliances, and custom cabinets. Your home sold for $450,000 based on your asking price. The appraisal comes in at $425,000 because the comparable homes sold for less, even with similar kitchens.
| Action | Consequence |
|---|---|
| You show appraiser photos of $45,000 kitchen renovation | Appraiser accounts for kitchen upgrade in comparison analysis |
| Appraiser finds comps with similar kitchens that sold for $420,000-435,000 | Kitchen upgrade is already factored into comp prices |
| You request appraisal reconsideration with better comps | If comps truly show higher prices, appraiser may increase value by $5,000-10,000 |
| You don’t provide new comparable data | Appraisal stays at $425,000 because appraiser followed proper procedure |
| Buyer needs additional cash to close deal | Buyer must either pay $25,000 more from savings or renegotiate price with you |
The Consequence That Happens: Your home appraises at market value, not at replacement cost of improvements. An expensive kitchen is great but doesn’t add dollar-for-dollar to home value if comparable homes sold for less. This teaches a critical lesson: you cannot over-improve beyond what the neighborhood supports.
Scenario 3: You Found Water in the Basement Before Appraisal Day
The Situation: One week before the appraisal, you notice water seeping into your basement after heavy rain. You clean it up but don’t repair the underlying drainage problem. The appraiser arrives, sees no active water, but notices the wet staining on walls and musty smell.
| Action | Consequence |
|---|---|
| Appraiser documents water stains and musty odor in basement | Appraisal value drops because water intrusion signals structural/drainage failure |
| For FHA/VA/USDA loans, appraiser flags wet basement as repair requirement | Seller must fix drainage and dry out basement before closing |
| You get a quote to fix drainage ($8,000-12,000) | Repair costs reduce your net proceeds from the sale significantly |
| You skip the repair and close anyway (conventional loan) | Buyer discovers the problem after closing and sues you for repair costs |
| You run a dehumidifier to hide the moisture | Appraiser’s moisture detection equipment finds dampness; you cannot fake a dry basement |
The Consequence That Happens: Government-backed loans will not close with a wet basement—period. The appraisal triggers a mandatory repair requirement. For conventional loans, the appraisal value drops because the buyer will factor in future repair costs. You either fix it before closing or accept a lower sale price.
Mistakes Homeowners Make That Destroy Appraisals
Mistake 1: Overpricing Your Home at the Start
The single biggest cause of low appraisals is that the seller listed the home too high. You can have a beautiful house in perfect condition, but if comparable homes in your area sold for $350,000 in the last six months, listing at $385,000 creates an appraisal gap. The appraiser will compare your home to those comps and value it at market rate, not your asking price. Appraisers must be objective; they cannot let your asking price influence their opinion. Overpricing early leads to price reductions later, which signals weakness to buyers.
Mistake 2: Skipping Basic Maintenance Before Showing
Dirty windows, overgrown bushes, peeling paint, and cluttered rooms make your home look neglected, even if the structure is sound. Appraisers note curb appeal and the overall maintenance condition because these reflect how well the previous owner cared for the property. A clean, well-maintained home appraises higher than an identical home in poor condition. You don’t need to renovate; you need to show the home at its best.
Mistake 3: Not Fixing Obvious Safety Issues
Exposed electrical wiring, missing handrails on stairs, gaps around doors that allow drafts, and broken GFCI outlets in kitchens are safety hazards that appraisers must document. If your home is government-backed (FHA, VA, USDA), these issues become mandatory repair requirements that block the entire loan approval. Even for conventional loans, obvious safety problems reduce the appraisal value because buyers and appraisers know repairs will be needed.
Mistake 4: Ignoring Roof Problems
Waiting to replace a failing roof is one of the costliest mistakes. An appraiser will estimate the replacement cost and reduce your home value accordingly. If your roof is at the end of its life, fix it before selling or refinancing. The appraisal will recover $10,000-20,000 in value if the roof is new instead of failing. One roof replacement often eliminates an appraisal gap entirely.
Mistake 5: Making Improvements That Don’t Match Your Neighborhood
Installing a $100,000 gourmet kitchen in a neighborhood where homes sell for $250,000 creates problems. The appraisal will not support a value proportional to your investment because comparable homes don’t justify that price. You can upgrade features, but make sure your improvements match the neighborhood’s overall condition and price range.
Mistake 6: Not Gathering Documentation for Special Features
If you added a bedroom, finished a basement, or built a deck, keep the permits and receipts. Without documentation, appraisers cannot count the addition toward your home’s value. They need proof the work was done properly and is included in the square footage. Missing paperwork costs you thousands in appraisal value.
Mistake 7: Leaving Known Problems Unfixed
If you know the foundation is cracking, the basement floods, or the plumbing is failing, the appraisal will catch it. Hiding problems doesn’t work because appraisers are trained to spot signs of major issues. Addressing problems upfront costs less than dealing with low appraisals, buyer negotiations, and legal liability after closing.
Mistake 8: Not Preparing For the Appraisal Day
Leaving the home locked so the appraiser cannot access the attic, basement, or crawlspace delays the inspection and may require a return visit, costing extra money. Making sure appliances work, doors open and close, and all systems function helps the appraiser complete the inspection efficiently. An incomplete inspection leads to an incomplete appraisal report, which may require re-ordering.
Comparing What Adds Value vs. What Doesn’t
| Feature | Adds Value | Doesn’t Add Value |
|---|---|---|
| New roof | Yes – worth $10,000-20,000 | Old roof – depresses value by same amount |
| Updated kitchen | Yes – worth $15,000-30,000 | Cosmetic updates only – adds minimal value |
| New HVAC system | Yes – worth $5,000-8,000 | Working system from 1995 – gets noted as aging |
| Master bathroom upgrade | Yes – worth $8,000-15,000 | One outdated bathroom – noted as deficiency |
| Attached garage | Yes – worth $5,000-10,000 | Open carport – worth significantly less |
| Swimming pool | Depends on neighborhood – maybe adds $10,000-20,000 | High-maintenance pool in cold climate – may reduce value |
| Finished basement | Yes – adds $10,000-25,000 | Unfinished basement – not included in square footage |
| Energy-efficient windows | Yes – adds $3,000-8,000 | Single-pane windows – noted as outdated |
| Hardwood flooring | Yes – worth $5,000-15,000 | Worn carpet – must be replaced |
| Fresh paint | Yes – adds curb appeal | Peeling paint – noted as repair requirement |
| Landscaping improvements | Minimal – improves curb appeal | Dead trees, overgrown – hurts first impression |
| Home theater/wet bar | Depends – specialty features have limited buyer appeal | Generic spaces – no added value |
Do’s and Don’ts Before Your Appraisal
Do’s:
- Do clean your home thoroughly – A clean, well-organized home shows pride of ownership and helps the appraiser move through quickly. Focus on kitchens, bathrooms, and basements because appraisers spend extra time inspecting these areas.
- Do ensure all systems work – Run the furnace, test air conditioning, turn on lights and appliances, flush toilets, and run faucets so the appraiser can verify everything functions. A working system is worth thousands more than a broken system.
- Do gather documentation for improvements – Collect permits, receipts, and photos of renovations, additions, and upgrades. Show the appraiser proof that the work was done professionally and is properly permitted.
- Do unlock all areas – Make sure the appraiser can access the attic, basement, crawlspace, and garage without obstacles. Locked or blocked areas may require a second trip, costing extra time and money.
- Do trim landscaping – Cut back bushes, mow the lawn, and remove dead branches before the appraiser arrives. Curb appeal matters because the exterior condition reflects overall maintenance.
- Do neutralize the space – Remove personal items, family photos, collections, and clutter. Appraisers need to see the home’s features, not your personal style.
- Do provide recent comparable sales data – If you believe your home is underpriced, gather MLS data on recent sales of similar homes and provide it proactively. The appraiser uses this data anyway; helping them find good comps ensures accuracy.
Don’ts:
- Don’t rush the appraiser – Let them take time to inspect carefully. Rushing leads to incomplete inspections and potentially inaccurate appraisals.
- Don’t argue about the value – Stay quiet during the inspection. The appraiser is trained to be objective; your opinion won’t change their professional judgment.
- Don’t hide problems – If you know about a leak, crack, or failing system, the appraiser will find it. It’s better to disclose it than have them discover it and question your honesty.
- Don’t make major repairs the week before – New repairs haven’t had time to settle or show proper quality. Schedule major work at least two weeks before the appraisal so everything looks established.
- Don’t over-stage the home – Don’t rent furniture, add fake landscaping, or make temporary fixes. Appraisers can spot staged properties, and false impressions undermine their confidence in the entire inspection.
- Don’t communicate with the appraiser about value – Don’t call, text, or email the appraiser before or after the inspection with concerns about value. Communicate through your lender only to maintain independence.
- Don’t leave the home empty – Make sure someone is present during the inspection to unlock areas and answer questions. An absent owner creates access problems.
- Don’t expect the appraisal to match your asking price – The appraisal is based on market data, not what you want or need. Accept the market value and adjust expectations accordingly.
Federal vs. State Variations in Appraisal Standards
All appraisers must follow USPAP (Uniform Standards of Professional Appraisal Practice) because federal law requires it. However, individual states enforce licensing and can add stricter requirements. Each state has an Appraiser Regulatory Agency that sets minimum education, exam, and experience requirements for appraisers working in that state.
Government-backed loans add extra layers. FHA appraisals follow HUD Handbook 4000.1, which sets minimum property standards including structural soundness, health and safety, and property protection. VA appraisals check for minimum property requirements (MPRs) that are very similar to FHA standards but specific to VA requirements. USDA appraisals add rural-specific requirements, such as confirming the property is in a USDA-eligible area, that well or septic systems are properly located, and that land value doesn’t exceed 30% of the home’s total value.
Conventional loans (not government-backed) follow federal law but have fewer mandatory repair requirements. The lender may set its own appraisal standards as long as they comply with USPAP and federal independence rules. This means a conventional appraisal might accept conditions that FHA or VA would reject as mandatory repair requirements.
State-specific factors include different comparable sales availability, which affects appraisal accuracy. States with few recent sales of similar homes force appraisers to use properties that aren’t perfect matches, which requires more adjustments and creates higher margins for error. Urban states have abundant comps; rural states force appraisers to search wider geographic areas.
How to Challenge an Appraisal That Comes in Low
Step 1: Request the Full Appraisal Report
You have the right to see the complete appraisal report. Federal law requires lenders to provide a copy of all appraisals developed for your credit application. Review it carefully and check for errors like incorrect square footage, missing upgrades, or wrong comparable sales. Common mistakes include miscalculating room count, forgetting to include a garage, or using outdated sale comps.
Step 2: Look for Specific Errors, Not Just Low Value
You cannot challenge an appraisal simply because you think it’s too low. You need specific evidence of errors. Check whether the appraiser:
- Calculated square footage incorrectly (compare to your deed or tax records)
- Left out significant upgrades you completed
- Used poor comparable sales that don’t match your home’s features
- Missed recent renovations or new systems
- Included outdated information (like a roof’s age when it’s been replaced)
- Made factual errors about the property (number of rooms, condition, amenities)
Step 3: Submit a Reconsideration of Value (ROV) Request
Effective October 31, 2024, Fannie Mae, Freddie Mac, and FHA require a formal Reconsideration of Value process. You can submit one ROV request (not multiple) asking the appraiser to review their opinion based on new or overlooked information. Your request must include:
- A clear explanation of why you believe the appraisal is inaccurate or incomplete
- A minimum of two and maximum of five comparable sales showing higher recent sales prices
- Documentation of errors in the appraisal (wrong square footage, missing features)
- Photos or permits showing recent repairs and upgrades
- Market data showing appreciation in your neighborhood
Do NOT include estimated value ranges or emotional arguments. Stick to facts: the appraiser missed this comparable, used an outdated comp, or made a calculation error.
Step 4: Work Through Your Lender
You cannot contact the appraiser directly. Submit your ROV request to your lender, and they forward it to the appraiser. The appraiser must resolve the ROV and respond within 15-30 business days. If they revise the appraisal, the new value applies. If they don’t revise it, you can request a second appraisal (which you pay for), but the lender doesn’t have to accept it.
Step 5: Know When to Walk Away
If the ROV doesn’t result in a higher value and you cannot make up the appraisal gap, you have options: renegotiate the purchase price with the seller, bring additional cash to closing, or cancel the transaction if you included an appraisal contingency in your offer. For refinances, you can shop for a different lender or postpone the refinance.
Repair Requirements for Government-Backed Loans
Government-backed loans (FHA, VA, USDA) use appraisals differently than conventional loans. Appraisers must verify that homes meet minimum property standards, not just estimate fair market value. If a home fails to meet these standards, repairs are required before the loan closes.
FHA Minimum Property Standards:
FHA appraisals check for structural soundness, health and safety, property protection, and compliance with local codes. Required repairs include:
- Any chipping or peeling paint (lead-based paint removal if home built before 1978)
- Roof repairs to ensure no more than three shingle layers
- Foundation or structural defects
- Plumbing that works; no backed-up systems
- Electrical defects, exposed wiring, or safety hazards
- Broken HVAC systems or insufficient heating
- Rotting wood or pest damage
- Wet or damp basements and crawlspaces
- Safety hazards like missing handrails on stairs
VA Minimum Property Requirements:
VA loans require homes to meet MPRs similar to FHA standards but with VA-specific language. Homes must have adequate living space, sleeping areas, and sanitary facilities. Structural, electrical, plumbing, and safety issues must be fixed.
USDA Standards:
USDA appraisals verify the property is in a USDA-eligible rural area and meets property requirements. Additional requirements include well or septic systems located at least 100 feet from the home, land value not exceeding 30% of total home value, and no structures used to produce income like barns or silos.
Repair Escrow and Responsibility:
For FHA loans, the repair escrow limit is $35,000. Repairs must be started within 90 days of loan finalization and completed within one year. Typically, the seller handles repairs, but if the cost is substantial (new roof or furnace), you and the seller renegotiate the purchase price.
If repairs are extensive, consider the FHA 203(k) rehabilitation loan, which lets you finance the repairs into your mortgage. This way, you borrow extra money to pay for required work, and the improved home value supports a larger loan amount.
When Appraisals Cause Deals to Fall Apart
Low appraisals kill transactions when the appraisal value falls significantly below the agreed purchase price. This creates an “appraisal gap”—the difference between what the buyer and seller agreed to pay and what the lender will finance based on the appraisal.
Example of an Appraisal Gap:
Contract price: $300,000
Appraised value: $280,000
Appraisal gap: $20,000
If the lender finances 80% of the appraised value: 80% × $280,000 = $224,000
The buyer needs to bring $76,000 to closing (instead of the planned $60,000).
Frequency of Low Appraisals:
According to CoreLogic data, approximately 8% of home appraisals come in below contract price, though this varies by market. In rapidly appreciating markets where bidding wars push prices up, low appraisals are more common. In slower markets, appraisals align more closely with contract prices.
When Appraisals Derail Sales:
An appraisal gap becomes a deal-killer when:
- The buyer cannot afford to make up the difference in cash
- The seller refuses to lower the price
- The buyer has an appraisal contingency in the offer, allowing cancellation without penalty
- The property has significant repair requirements (government-backed loans) that increase costs beyond expectations
In these situations, the transaction often cancels, and both parties start over. Sellers relist the home at a lower price reflecting the appraised value. Buyers either find a different property or negotiate a lower price with a different seller.
Appraisal Gap Clauses:
Some offers include “appraisal gap guarantee clauses” where the seller agrees to lower the price if the appraisal is lower than the offer price. This protects the buyer but limits the seller’s upside. More commonly, the buyer simply brings extra cash or walks away.
Pros and Cons of Appraisals for Buyers and Sellers
| Perspective | Pros | Cons |
|---|---|---|
| Buyers | Protects from overpaying; ensures lender won’t finance property worth less than loan amount; identifies needed repairs | Creates appraisal gap if valuation is lower than offer; delays closing if repairs are required; costs time and money to challenge appraisal |
| Sellers | Validates asking price if appraisal comes in at offer price; eliminates deals from unqualified buyers whose loans won’t close | Low appraisal forces price reduction or deal cancellation; required repairs reduce profit; delays sale if government-backed loan repairs are extensive |
| Lenders | Protects lender from loaning more than property is worth; reduces default risk; identifies safety hazards | Requires time and money to order appraisal; low appraisals can kill deals that lenders wanted to close; stricter standards delay loan approval |
| Appraisers | Protects professional independence; clear standards (USPAP) guide work; compensation rules prevent conflicts | Pressure from borrowers and sellers to inflate values; strict liability for errors; time-consuming documentation and review requirements |
The Appraisal Independence Rules
Federal law protects appraisers from pressure to inflate values. Lenders cannot threaten, intimidate, coerce, or financially punish appraisers who provide values below the purchase price. This means a lender cannot tell an appraiser “lower this value and we won’t work with you again” or “raise the value or we’ll find someone else.” These actions violate federal law and trigger investigations.
Appraisers also cannot have financial interests in properties they appraise or in the outcome of the transaction. If an appraiser owns the property or stands to gain money from a higher value, they must recuse themselves from the appraisal.
Lenders must pay appraisers at “customary and reasonable” rates based on the local market, not artificially low fees that encourage undervalued appraisals or unreasonably high fees that encourage inflated valuations. Third-party information, such as government agency fee schedules and independent surveys, establishes what “customary and reasonable” means in each market.
If someone violates these independence rules—whether a lender pressures an appraiser or an appraiser accepts bribes to inflate values—the violation must be reported to the state appraiser licensing board within a reasonable time. Violations can result in fines, loss of license, or criminal charges.
FAQs
Q: Can I get a second appraisal if I disagree with the first one?
Yes, you can order a second appraisal at your own cost, but your lender is not required to accept it. If you’re using a government-backed loan (FHA, VA, USDA), you should submit a Reconsideration of Value request first, which is free. For conventional loans, check your appraisal contingency in your purchase agreement.
Q: What if the appraiser missed significant improvements I made to my home?
Yes, this is a valid reason to request a Reconsideration of Value. Submit documentation including permits, receipts, and photos of the improvements. If the appraiser left out information affecting value, they must update the appraisal. Provide proof the work was completed professionally.
Q: How long does an appraisal take to complete?
Typically, an appraisal takes 7 to 10 business days from order to final report, though it can take longer in complex situations. The appraiser needs time to inspect, research comps, and write the detailed report. Lenders must provide you a copy by law.
Q: Can I be present during the appraisal?
Yes, you can be there, but stay quiet and don’t try to influence the appraiser’s opinions. Pointing out features is okay, but arguing about value or commenting on what you think it’s worth crosses the line. Let the appraiser work independently.
Q: Will recent upgrades like a new kitchen definitely increase my appraisal?
Not necessarily. Upgrades increase value only if comparable homes with similar upgrades sold for higher prices. If you over-improve for your neighborhood, the appraisal won’t support premium pricing. Match your upgrades to neighborhood standards.
Q: What happens if an appraisal comes in low and I’m paying cash (no mortgage)?
Without a mortgage lender, you don’t need an appraisal unless you want one for your own information. However, if selling, a low appraisal suggests you overpriced—consider adjusting your asking price to match appraised value.
Q: Can the seller fix problems found during an appraisal after closing?
For government-backed loans, repairs must be completed before closing. For conventional loans, some repairs can proceed after closing if both parties agree in escrow, where funds are held until proof of completion arrives.
Q: How much will an appraisal cost me?
Appraisal fees typically range from $400 to $700 depending on home size and complexity. The buyer (for purchases) or homeowner (for refinance) usually pays. Lenders must disclose the cost upfront.
Q: What if the appraiser made a factual error like wrong square footage?
This is a valid reason to request an appraisal correction. Provide proof of correct measurements from your deed, tax records, or professional measurement. The appraiser must correct factual errors and may revise value accordingly.
Q: Does getting an appraisal mean my loan will be approved?
No, an appraisal is just one step. Your lender still reviews credit, employment, debt-to-income ratio, and other factors. A good appraisal helps, but it doesn’t guarantee loan approval. However, a poor appraisal can kill your loan even if everything else is good.
Q: How do appraisers determine the exact market value when no home is identical?
Appraisers use three approaches: comparable sales (comparing to recent sales), cost approach (replacement cost), and income approach (rental income). They adjust each comparable for differences in size, condition, location, and features. Professional judgment fills gaps where perfect comparables don’t exist.
Related reading
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