What Does a Home Appraiser Look For? A Buyer's Guide to Appraisals

The home appraisal is one of the most consequential steps in buying a house — and one of the least understood. It's not just a formality. If the appraisal comes in lower than your agreed purchase price, the deal can unravel unless someone is willing to renegotiate.

This guide explains exactly what an appraiser evaluates, the factors that most commonly affect value (including some that surprise buyers), and what you can do when an appraisal doesn't go the way you expected.

Why the Appraisal Exists

Your lender doesn't take your word for what a house is worth. They need an independent, licensed professional to confirm that the property's market value supports the loan amount. The lender is using the property as collateral — if you default, they need to know they can recover their money by selling it.

The appraisal protects the lender. It also protects you, though buyers don't always see it that way: if you're under contract at $400,000 and the appraisal comes back at $375,000, that's the market telling you the property is overpriced.

Who Conducts the Appraisal and How It's Ordered

Your lender orders the appraisal through an Appraisal Management Company (AMC), which assigns a licensed appraiser. This arm's-length process is required by federal law since the 2010 Dodd-Frank Act — neither the buyer nor the lender can select or influence the appraiser.

You pay for the appraisal (typically $400–$700 for a standard single-family home), usually as an upfront fee separate from closing costs. You're entitled to receive a copy of the report.

The appraisal visit typically takes 30 minutes to a few hours depending on the home's size and complexity. The written report follows within a few days.

What the Appraiser Evaluates

1. Location

Location affects value at multiple scales:

Neighborhood factors:

• School district quality and ratings
• Crime statistics
• Proximity to employment centers, shopping, and amenities
• Neighborhood trend: improving, stable, or declining?
• Traffic, noise, industrial uses nearby

Site factors:

• Lot size and usability
• Topography (steep slopes are less desirable and more expensive to build on)
• Views: a water view or mountain view adds value; a highway or industrial view subtracts it
• Flood zone status (properties in FEMA Special Flood Hazard Areas face mandatory flood insurance costs that suppress value)

Location is the one factor a seller cannot change — it's baked in.

2. Size and Layout

Gross living area (GLA): This is the finished, above-grade square footage. Basements are typically not included in GLA, even if finished. The appraiser measures the home themselves rather than relying on listing data (which is frequently inaccurate).

Room count and configuration:

• Number of bedrooms and bathrooms
• Functional layout: does the home flow sensibly? A three-bedroom home where you have to walk through a bedroom to reach the bathroom is functionally inferior
• Bedroom-to-bathroom ratio

Above-grade vs. below-grade: A finished basement adds value but is appraised separately from above-grade living space. On a per-square-foot basis, finished basement space is worth considerably less than above-grade space — typically 50–75% as much.

3. Condition and Quality

The appraiser rates condition on a scale (the UAD Uniform Appraisal Dataset uses C1–C6, with C1 being new and C6 being in need of substantial repair). This is one of the most impactful assessments:

Specific items appraised:

• Roof: age and condition
• HVAC: age, functional status, expected remaining life
• Windows: single, double, or triple-pane; any broken seals
• Foundation: visible cracks, settling, evidence of movement
• Plumbing and electrical: adequacy and condition
• Kitchen and bathrooms: age of updates, quality of finishes

4. Comparable Sales (The "Comps")

This is the core of how value is established. The appraiser finds 3–6 recent sales of similar properties (comps) in the same neighborhood or a comparable area and adjusts for differences.

Adjustments are made for:

• Square footage (price per square foot adjustments)
• Bedroom/bathroom count differences
• Garage (presence, size, attached vs. detached)
• Pool
• Condition differences
• Time of sale (the market may have changed since the comp sold)
• Location differences within the neighborhood

The art of the appraisal is in these adjustments. Two appraisers given the same property and the same comps can legitimately reach different conclusions.

Important: Appraisers must use sold comps, not active listings. A property currently listed at $450,000 is irrelevant to the appraisal — only closed sales count.

5. Upgrades and Improvements

Not all improvements add dollar-for-dollar value. Appraisers look at:

Generally good ROI:

• Kitchen remodels (mid-range; high-end often doesn't fully recoup)
• Bathroom additions or updates
• Curb appeal and landscaping
• Deck or porch additions
• HVAC replacement (brings property to functional adequacy)

Common overcapitalizations (improvements that don't add much value):

• Swimming pools in many northern markets (adds maintenance liability)
• High-end finishes in a modest-priced neighborhood (you can't appraise beyond the neighborhood ceiling)
• Luxury additions that are out of place for the comp set

The neighborhood ceiling problem: If every comparable sale in your neighborhood is selling for $280,000–$310,000, a $50,000 kitchen renovation will not push your value to $360,000. The appraiser can only support values that comparable sales justify. This is called "over-improvement."

4 Factors That Surprise Buyers

1. The Date of Closing Matters

In a rising or falling market, a comp that sold 8 months ago may be stale. Appraisers are required to make time adjustments when the market has moved meaningfully. In a market that's been appreciating 5% annually, an 8-month-old comp might be adjusted upward by 3–4%.

2. Permitted vs. Unpermitted Work

An appraiser will check permit history. Finished square footage added without a building permit (a common contractor shortcut) may be excluded from the appraised GLA. Worse, some lenders won't lend on properties with unpermitted work until it's remedied. Always ask the seller's agent about permits for any renovations.

3. Your Offer Price Is Not Hidden From the Appraiser

Appraisers can see the contract price. This creates a potential bias — appraisers sometimes unconsciously anchor to the contract price. However, they're obligated to support their value with comps, and they face liability if they simply rubber-stamp an inflated offer.

4. HOA Fees Affect Value Indirectly

Appraisers consider HOA fees when evaluating comparable sales. High HOA fees reduce the effective monthly cost headroom buyers have, which can suppress price ceilings in markets with many HOA properties.

What Happens If the Appraisal Comes In Low

A low appraisal (below the agreed purchase price) triggers a choice:

Option 1: Renegotiate the price. Ask the seller to lower the purchase price to the appraised value. In a balanced market, sellers often accept this — they know another buyer will face the same appraisal problem.

Option 2: Make up the gap in cash. You can pay the difference between the appraised value and the contract price in cash at closing. Your loan is based on the lower appraised value; the extra is yours to provide. This is only viable if you have the liquidity.

Option 3: Contest the appraisal. If you believe the appraiser missed a relevant comp or made an error, you can submit a formal reconsideration of value (ROV) to the lender. Provide 2–3 comparable sales the appraiser didn't use that support a higher value. This works occasionally — maybe 10–20% of the time — when there's a genuine mistake.

Option 4: Walk away. If you included an appraisal contingency in your offer, a low appraisal typically allows you to exit the contract and recover your earnest money deposit.

Appraisals for Refinancing

A refinance appraisal works the same way as a purchase appraisal, with one key difference: you (and your agent) cannot attend, but the appraiser will often accept a list of comparable sales you provide before the visit. Prepare a list of recent comps that support your target value. Clean the house, fix visible deferred maintenance, and document any improvements with receipts.

For refinances, the appraised value determines your LTV, which affects whether you qualify for the refinance, your rate, and whether you can eliminate PMI.

Understanding the appraisal process means you won't be blindsided by a low appraisal — and if one happens, you'll know your options.

Our Complete First-Time Homebuyer Checklist includes a Due Diligence section that walks through the appraisal contingency, what to watch for in the contract, and how to use a low appraisal as a negotiating tool rather than a deal-breaker.

Download the Homebuyer Checklist — $14 →