How a Home Appraisal Works

What it is

A home appraisal is an independent, professional opinion of a property's value, produced by a licensed or certified appraiser who inspects the home in person. Unlike an automated estimate, an appraisal involves a trained person actually walking the property. It's most commonly ordered by a lender as part of a mortgage, refinance, or home-equity transaction — the lender wants an objective value to confirm the home is worth what's being borrowed against it.

How it works

The appraisal process generally follows these steps:

1. The order. In a lending situation, the lender orders the appraisal (often through an independent management company) so the appraiser stays neutral. The borrower typically pays for it.
2. The inspection. The appraiser visits the home and evaluates its size, layout, age, condition, quality of construction and finishes, upgrades, and any issues such as needed repairs. They also consider the lot, location, and features like a garage or additional living space.
3. Selecting comparables. The appraiser identifies recent sales of similar homes ("comps") in the area — properties close in size, age, condition, and location.
4. Making adjustments. No two homes are identical, so the appraiser adjusts the comps up or down for differences. If a comp has an extra bathroom or a larger lot than the subject home, its price is adjusted to make an apples-to-apples comparison.
5. The final (reconciled) value. The appraiser weighs the adjusted comparable sales and the property's own characteristics, arrives at a final opinion of value, and documents it in a report following professional standards.

Because a person inspects the home and applies professional judgment, an appraisal can capture things an automated model can't — like interior condition and recent renovations.

What affects it / How to think about it

An appraisal's value is driven by comparable sales, the home's condition and features, and local market conditions. Recent, nearby, genuinely similar sales carry the most weight. A home in excellent condition with quality upgrades will generally appraise higher than a comparable home that's dated or in disrepair.

What a low appraisal means. In a purchase, if the appraisal comes in below the agreed sale price, the lender will typically only lend against the lower appraised value. That can create a gap the buyer and seller must resolve — for example, by renegotiating the price, the buyer bringing more cash, or challenging the appraisal with additional comps. In a refinance, a low appraisal can affect how much equity (the share of your home you own outright — its value minus what you owe) you can access or whether the loan works at all. A low appraisal isn't necessarily "wrong"; it's the appraiser's supported opinion given the comps and condition, and it's worth reviewing the reasoning.

Because appraisals are in-person and standards-based, they're the benchmark lenders rely on — but they still reflect a point in time and a specific set of comps.