Understanding the Appraisal
What sellers should know when the buyer’s lender evaluates your home
If your buyer is financing the purchase, their lender will generally require an appraisal before approving the mortgage.
The appraisal provides an independent opinion of the property's value and helps the lender determine whether the home provides sufficient collateral for the amount being financed.
For sellers, the important thing to understand is that an accepted purchase price and an appraised value are two different things. You and the buyer agree on the purchase price. The appraiser independently develops an opinion of value for the lender.
Who Orders the Appraisal?
The buyer's lender typically orders the appraisal after the property is under contract.
Although the buyer generally pays for it, the appraisal is performed as part of the lender's mortgage process. Neither the buyer, seller, nor real estate agents select the individual appraiser.
AED Realty will coordinate access to the property and provide appropriate property and market information when permitted.
How Does an Appraiser Determine Value?
The appraiser evaluates the property and analyzes relevant market information to develop an opinion of value.
Factors may include:
Location
Property type
Living area and overall size
Lot size
Bedrooms and bathrooms
Age and condition
Improvements and renovations
Garage and parking
Basement and finished space
Amenities and other property features
Recent comparable sales
Current market conditions
The appraiser will generally compare your property with similar properties that have recently sold and make adjustments for meaningful differences.
An appraisal is ultimately an opinion of value, not a guarantee of what a property is worth.
Is an Appraisal the Same as an Inspection?
No.
A home inspection primarily evaluates the property's condition for the buyer.
An appraisal primarily evaluates the property's value for the buyer's lender.
An appraiser may observe conditions that affect value or create lender requirements, but the appraisal isn't intended to replace a professional home inspection.
How Should I Prepare for the Appraisal?
You don't need to stage the property all over again, but it should be reasonably accessible and presentable.
Before the appraisal:
Make sure the appraiser can access the entire property
Keep mechanical and utility areas accessible
Complete any repairs you've already agreed to make when possible
Make sure renovations or improvements can be easily identified
Gather useful information about significant improvements
Let AED Realty know about features or updates that may not be obvious
We'll handle access and determine what information may be helpful to provide to the appraiser.
Can AED Realty Provide Comparable Sales to the Appraiser?
When appropriate and permitted, we can provide factual information about the property, improvements, relevant comparable sales, and other market data.
The objective isn't to tell the appraiser what the property should be worth.
The appraiser must independently develop the valuation.
Our role is to make sure relevant factual information about the property and market is available while respecting the appraiser's independence.
What Happens If the Home Appraises at or Above the Purchase Price?
Usually, very little from the seller's perspective—and that's generally good news.
If the appraisal supports the transaction and the property satisfies the lender's requirements, the buyer's financing process can continue.
If the property appraises above the purchase price, that doesn't normally change the amount the buyer agreed to pay you.
The purchase price remains the price established in the contract.
What Happens If the Appraisal Comes in Low?
A low appraisal occurs when the appraiser's opinion of value is below the agreed purchase price.
For example:
Purchase Price: $400,000
Appraised Value: $385,000
Difference: $15,000
That doesn't automatically mean you have to reduce your price by $15,000, nor does it automatically mean the transaction is over.
What happens next depends on the purchase contract, the buyer's financing, the appraisal provisions, and the willingness of the parties to reach an agreement.
What Are the Options After a Low Appraisal?
Depending on the transaction, possible options could include:
The seller reducing the purchase price
The buyer bringing additional funds to closing
The buyer and seller negotiating a compromise
Requesting a reconsideration of value through the lender
The buyer exploring another financing solution
Proceeding according to any appraisal-related provisions in the contract
There isn't one automatic solution.
AED Realty will help you understand the financial and negotiating considerations while your attorney can advise you regarding your contractual rights and obligations.
Can We Challenge the Appraisal?
Sometimes a lender may allow a reconsideration of value if there is a legitimate reason to question the appraisal.
For example, the report could contain a factual error or there may be relevant market information that wasn't considered.
AED Realty can review the appraisal from a real estate perspective and help identify relevant information that may support a reconsideration request.
However, simply disagreeing with the value isn't enough to guarantee a change.
The lender controls its appraisal-review process, and the appraiser remains responsible for the independent opinion of value.
What If We Had Multiple Offers Above the Appraised Value?
Multiple offers can be useful market information, but they don't automatically establish the appraised value.
An appraiser generally relies heavily on relevant closed sales because those transactions provide evidence of what buyers have actually paid.
If appropriate, information about the property's market exposure and competing offers may provide additional context, but the appraiser still makes an independent determination.
Does a Low Appraisal Mean We Priced the Home Too High?You can.
Not necessarily.
The list price, market value, contract price, and appraised value are related—but they're not always identical.
A competitive market can produce multiple buyers willing to pay more than recent comparable sales might suggest. A unique property may also have limited comparable sales available.
An appraisal is one professional's opinion of value for a particular lending transaction. It doesn't retroactively determine whether your original pricing strategy was right or wrong.
What matters now is understanding how the appraisal affects the current transaction and deciding how to respond.
Why the Offer's Appraisal Terms Matter
This is one reason AED Realty looks beyond price when helping you evaluate an offer.
Two buyers could each offer $425,000 but propose very different terms regarding a low appraisal.
One buyer may retain substantial contractual protection. Another may agree to cover some or all of a potential appraisal shortfall, subject to the terms of the contract.
Those differences can become very important if the appraisal doesn't support the purchase price.
That's why we evaluate price and terms together before you accept an offer.
The Appraisal Is Another Step Toward Closing
Most appraisals don't result in a major dispute. They're simply another part of the buyer's financing process.
If an issue does arise, we'll evaluate the appraisal, communicate with the parties involved, discuss the available options, and help you determine the best strategy for moving forward.
Once the appraisal and financing are successfully addressed, the transaction moves another important step closer to closing.
Getting Close to the Finish Line
With inspection, attorney review, and appraisal behind you, attention begins shifting toward final loan approval, title work, the buyer's final walkthrough, and closing.
This information is provided for general educational purposes and is not intended as legal, appraisal, tax, financial, or lending advice. Contract terms, lender requirements, market conditions, and individual circumstances vary. Consult your attorney and other appropriate licensed professionals regarding your specific transaction.