The Home Appraisal Process

When using traditional financing to purchase a property the bank will order an appraisal. This is done to get an estimated value of the property.

The appraisal let’s the bank (and you) ensure the value of the property is in line with the price you are purchasing it for.

It also protects you from overpaying as well as protecting the bank from lending more than the property is worth.

The appraisal is something, we the buyer, generally pay for.  It is paid at closing and will show up as a line item on your closing statement.

Here’s an example from the closing statement on a property I purchased.  You will see the appraisal cost under line 01 of section B.  This appraisal cost more than I expected because an elevation certificate was required, which I will delve into in the next section.

ScaredyCatGuide Appraisal

Cost of the Appraisal

Appraisals will cost anywhere from $350 to $600. The appraisal cost can vary based on your location and any additional services required.

Additional Services:


A property or land survey distinguishes the boundaries and corners of a parcel of land.  This information is used to recognize ownership of a specific area of land.

When financing a property purchase the lender will require a land survey to be performed along with the appraisal.

This protects their interest and yours in case any issues arise from the survey that impacts the sale or value of the property.

For example – You are purchasing a single family home.  However, the neighboring home has a fenced yard that the survey discovers intrudes the property line of the seller’s home by a foot.

That issue now impacts the sale of the property and needs to be resolved.

Elevation certificate

Exactly as it sounds, the elevation certificate documents the elevation of a property.  This is needed when a property lies within an area FEMA (Federal Emergency Management Agency) has designated as a flood zone.

There are different grades of flood zones and the elevation certificate will list which one FEMA designated for the area.  The certificate is needed to secure flood insurance, thus your lender will require it in order to finance the property.

This is a lesson I learned the hard way on a purchase. There was no way I’d assume it was in a flood zone as the other properties I owed in the area were not. Boy was I wrong, just because most of a town isn’t in a flood zone doesn’t mean all of it isn’t.

During underwriting the lender let me know I had to secure flood insurance.  This was a cost I did not factor, thus did not plug into my property calculator when running the numbers.

Luckily, the insurance was only a few hundred dollars per year and did not knock the cash on cash return below my acceptable threshold.  Watching a chunk of my monthly cash flow go poof wasn’t fun though.

Factors Used in the Appraisal

The two main factors used in the appraisal are the condition of the property and comparable sales.

Property Condition

The appraiser will analyze the condition of the property – this includes, but is not limited to:

  • Exterior (siding, roofing, foundation)
  • Interior (windows, walls, ceiling, cabinets, etc.)
  • Fixtures & Appliances (light fixtures, refrigerator, washer/dryer, etc.)

They factor in any damage or defects to the above items in the price estimate.

Comparable Sales

Comparable sales are derived from the recent sales price of similar properties in the area.

Here are some guidelines to what create a comparable sale:

  • Proximity (1 mile for suburban, 5 miles for rural areas)
  • Atleast 3 closed sales (within 6 months, but no more than a year)

Also, the comparable homes used will be roughly the same size with square footage varying by a couple hundred feet or so.

A Low Appraisal Price

What if we receive an appraisal below the sales price?

In a case like this there are a few options:

Another appraiser can be hired to give a second opinion

That appraiser may give a higher value as the estimates can and do vary between appraisers.  However, you or the seller (whoever orders it) will have to pay for that second appraisal in addition to the first.

We can bring more cash to the table

Let’s say you are putting 20% down on a 200K property.  However the appraisal comes in at 190K.  The bank is only going to lend you 80% of the 190k so you would need to bring an additional 8k to closing.

We can negotiate a price reduction or walk away from the deal

If the seller is motivated and the appraisal comes in low you should absolutely ask if they will come down on price.

If the seller won’t come down and you feel like you are overpaying than you can execute your financing contingency (discussed in the sales contract chapter) and withdraw from the deal.

The Appraisal Safety Net

As you can see, the appraisal can work in our favor to get a better price and prevent us from drastically overpaying for a property.

Speaking of overpaying for a property

Be sure to use the property calculator to analyze all your purchases so you don’t overpay! – you can download it for free: ScaredyCatGuide Property Calculator

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