Understanding Your Home Appraisal

Your lender orders an appraisal to confirm the home is worth what you're paying. If the appraisal comes in low, your financing is at risk. Understanding how appraisals work helps you prepare and respond.

How appraisers determine value

Appraisers use the sales comparison approach for most residential properties:

1. Find comparable sales ("comps") — similar homes that sold within the last 6–12 months, ideally within one mile.
2. Adjust for differences — each comp is adjusted up or down for bedrooms, baths, square footage, lot size, condition, and upgrades.
3. Reconcile to a final value — the appraiser weighs the comps and issues an opinion of value.

What hurts an appraisal

• ▸Few recent comps — sparse markets leave room for judgment.
• ▸Declining neighborhood values — appraisers adjust for market direction.
• ▸Over-improvement — a $80K kitchen in a neighborhood of $30K kitchens rarely returns dollar-for-dollar.
• ▸Functional issues — odd layouts, busy roads, lack of parking.

What to do if it comes in low

A low appraisal doesn't kill the deal automatically. Your options:

• ▸Renegotiate the price down to the appraised value — the cleanest outcome if the seller is motivated.
• ▸Make up the gap in cash — you pay the difference between price and appraisal.
• ▸Dispute the appraisal — provide better comps your appraiser missed. Works occasionally.
• ▸Walk away — if you have an appraisal contingency, you can exit and recover your earnest money.

Pro tip

Before the appraisal, give your agent's best comps to the appraiser (they're allowed to consider them). A prepared comp packet prevents a low appraisal driven by stale data.