Why appraisals matter to underwriters

Underwriters evaluate a mortgage application by weighing borrower creditworthiness against the loan’s collateral — the property. The appraisal is the primary evidence of that collateral’s market value. Underwriting decisions — approval, required down payment, mortgage insurance, or conditions — often hinge on the appraised value and the appraiser’s condition notes.

  • Loan-to-value (LTV) and combined LTV (CLTV). Lenders calculate LTV by dividing the loan amount by the appraised value. A lower appraisal raises LTV and may push a loan into higher-cost or ineligible tiers. (See FinHelp’s guide on combined LTV for refinancing effects.)
  • Risk-based pricing and mortgage insurance. A low appraisal can increase borrower costs: higher rates, private mortgage insurance (PMI), or a requirement for a larger down payment.
  • Property condition and safety. Appraisers note material defects and safety hazards. Underwriters can add conditions requiring repairs, escrow reserves, or a re-inspection before closing.

Sources: HUD and CFPB set consumer-protection rules that affect appraisal practice and disclosure (HUD: https://www.hud.gov; CFPB: https://www.consumerfinance.gov).

Who orders the appraisal and how it’s delivered

Most lenders order appraisals through an appraisal management company (AMC) to reduce conflicts of interest. The appraiser — a licensed state appraiser or certified appraiser — inspects the property (interior/exterior) and compiles a report using comparable sales, adjustments, and an opinion of value.

Common appraisal types:

  • Full (standard) appraisal: in-person interior/exterior inspection; typical for purchase loans and many refinances.
  • Desktop appraisal: appraiser uses public records and photos without a physical inspection.
  • Drive-by (exterior-only) appraisal: limited inspection of the property exterior and neighborhood.
  • Automated Valuation Model (AVM) / appraisal waiver: a computer model or automated system may provide a value or waive the appraisal entirely when risk is low. Fannie Mae and Freddie Mac sometimes grant appraisal waivers through automated underwriting systems for eligible loans (see Fannie Mae selling guide).

Typical timeline and cost (varies by market):

Appraisal type Typical cost (U.S.) Typical timeframe
Full appraisal $300–$700 7–14 days
Desktop appraisal $125–$300 1–3 days
Drive-by $150–$350 1–3 days
Reinspection / re-eval $100–$300 3–10 days

(Prices and timing depend on local market conditions and lender processes.)

How underwriters use appraisal details

Underwriters do more than accept the appraised value as-is. They read the report for:

  • Comparable sales selection and adjustments — do the comps truly match the subject property? Erroneous comps can skew value.
  • Square footage and bedroom/bathroom counts — discrepancies can materially change value.
  • Documented condition, deferred maintenance, or health/safety issues — underwriters may require repairs or escrowed repair holdbacks.
  • Site issues like flooding, zoning, or easements — these can affect marketability and loan eligibility.

A few underwriting outcomes tied to the appraisal:

  • Approve as-is: appraised value meets loan program LTV limits and property is acceptable.
  • Approve with conditions: lender requires repairs, a reinspection, or proof of completed work before closing.
  • Suspend or deny: appraised value or condition makes the loan too risky under program rules.

What happens when an appraisal comes in low?

A low appraisal creates a gap between the purchase price and lender’s collateral value. Common responses:

  1. Renegotiate the purchase price with the seller.
  2. Buyer brings additional cash to close (covering the shortfall and closing costs).
  3. Seller makes repairs or provides a concession.
  4. Request a reconsideration of value (ROV) or provide additional comparables to the lender — successful in some cases but not guaranteed.
  5. Ask the lender for a second appraisal or appeal through the appraisal review process. Note: second appraisals may be allowed at the lender’s discretion and can incur extra cost.

If you’re refinancing, a low appraisal can scuttle a cash-out refinance or require a different program. For more detail on refinancing implications, see FinHelp’s refinancing guides: Mortgage Refinancing: When to Refinance and Cost Considerations and Refinancing 101: When to Refinance Your Loan.

(Internal links: Mortgage refinancing guide: https://finhelp.io/glossary/mortgage-refinancing-when-to-refinance-and-cost-considerations/, Refinancing 101: https://finhelp.io/glossary/refinancing-101-when-to-refinance-your-loan/)

Challenging an appraisal: practical steps

Challenging an appraisal is common but must be handled carefully.

  • Gather objective evidence: recent comparable sales, closing data, photos, tax records, building permits, or contractor estimates for permitted improvements.
  • Point out factual errors in the report: incorrect square footage, number of beds/baths, lot size, or misreported condition.
  • Submit a formal Reconsideration of Value (ROV) via the lender. Lenders typically have a process and timeline for this.
  • Avoid pressuring the appraiser directly — that can violate appraisal independence rules. Instead, work with your lender’s appraisal review team or ask for an appraisal review.

Authoritative guidance on challenging appraisals and appraisal independence is available from the Appraisal Institute (https://www.appraisalinstitute.org) and CFPB consumer resources (https://www.consumerfinance.gov).

When an appraisal is waived

Automated underwriting systems (like Fannie Mae’s Desktop Underwriter) may offer an appraisal waiver for low-risk transactions or experienced borrowers with strong payment histories. A waiver can save time and cost, but it means the lender accepts an automated value with less property-specific inspection. Waivers are program-dependent and not guaranteed (Fannie Mae selling guide).

Special situations: investment properties, new construction, manufactured homes

  • Investment properties: appraisals often require rent schedules, market rent comparables, and possibly higher minimum property standards.
  • New construction: appraisers compare the new home to recently built homes and consider construction quality; they may review builder contracts and plans.
  • Manufactured homes and condos: both have specialized appraisal rules. Condo appraisals need to consider the project’s financials and condo association health.

Practical tips to improve appraisal outcomes

  1. Prepare the home: clean, declutter, and make easy repairs; provide access to all areas.
  2. Document upgrades: collect permits, receipts, and contractor warranties for major improvements.
  3. Compile local comps: provide a short list of comparable recent sales with reasons why they match.
  4. Time the listing: appraisals reference recent sales — in rapidly changing markets timing matters.
  5. Consider a pre-listing or pre-refinance appraisal: it provides an early, independent baseline value and can reduce surprises during underwriting.

Common misconceptions

  • Myth: Appraisers simply copy the listing price. Fact: Appraisers independently research sold comps; however, poor comp selection or rapidly changing markets can produce variance.
  • Myth: You can force an appraiser to change the value. Fact: Ethical standards prevent undue influence; corrections must be factual and go through the lender’s review process.
  • Myth: An appraisal is the same as an inspection. Fact: Inspectors focus on systems and safety; appraisers focus on market value and condition as it affects value.

Frequently asked questions (brief)

Q: Can I get a second appraisal? A: Often yes, but the lender must authorize it and may charge you the fee. A second appraisal can be useful if the first report contains clear errors.

Q: What if the appraiser missed recent renovations? A: Provide receipts, permits, photos, and a short summary to the lender for a reconsideration of value.

Q: Do appraisal values affect mortgage insurance? A: Yes — a lower appraisal can increase the LTV and therefore raise PMI costs or trigger different mortgage insurance rules.

Quick borrower checklist before appraisal day

  • Clean and declutter main living areas
  • Make access easy to attics, basements, and mechanical systems
  • Leave a list of recent upgrades and documents by the front door
  • Provide a list of recent comparable sales if available

Sources and further reading

Disclaimer: This article is educational and not individualized financial advice. For guidance specific to your loan or property, consult a licensed mortgage professional, appraiser, or real estate attorney.