Overview

Lenders order an appraisal to confirm the home is adequate collateral for a mortgage. The appraised value determines the loan-to-value (LTV) ratio lenders use to set approval limits and pricing. In my 15+ years advising borrowers, an appraisal is one of the most common pivot points that changes deal structure, not just a paperwork formality. (See FHA historical role in standardizing appraisals: fha.gov.)

Types of appraisal outcomes lenders use

  • Full on-site appraisal: licensed appraiser inspects the property, compares nearby sales, and creates a detailed report. This is the standard for purchase loans.
  • Desktop or drive-by appraisal: limited inspection or no interior visit; used sometimes for refinances.
  • Appraisal waiver: automated underwriting by GSEs (Fannie Mae/Freddie Mac) may waive a physical appraisal when data supports value — this shortens timelines but isn’t available for every file. (Consumer Financial Protection Bureau, consumerfinance.gov)

How appraisal value affects approval and pricing

  • Loan amount and LTV: Lenders will not lend more than a specified LTV based on the appraised value. If the appraisal is lower than the contract price, the borrower must cover the gap, renegotiate the price, or the lender reduces the loan.
  • Interest rate and pricing: Higher perceived risk (higher LTV) typically results in higher pricing or the need for private mortgage insurance (PMI). Lenders’ risk-based pricing models factor in appraised value when setting interest rate tiers.
  • Conditions and repairs: Appraisals can include conditions that must be fixed before closing. Unresolved safety or major structural concerns can delay or block approval.

Common scenarios and practical responses

  • Appraisal below purchase price (an appraisal gap): Options include renegotiating the purchase price, increasing the down payment to cover the gap, asking the seller for credits, or challenging the appraisal via a reconsideration of value if you can supply stronger comps or factual errors. See our deeper guide on navigating appraisal gaps for borrower strategies: Mortgage Appraisal Gaps: What Borrowers Should Expect.
  • Appraisal with required repairs: Obtain contractor bids and present them to the lender; sometimes the lender will require completion before funding or allow escrow holdbacks.
  • Appraisal waiver granted: This can speed closing and reduce cost; confirm the waiver terms with your lender and understand it may not be eligible with certain loan programs (seller concessions, unusual property features). See how appraisal waivers change the timeline: Real Estate & Mortgage Loans: How Appraisal Waivers Affect Mortgage Approval and Timeline.

Who’s affected

Buyers: A low appraisal can force more cash to close or a renegotiation. Sellers: A low appraisal can reduce buyer demand or require price adjustment. Lenders: Appraisals protect lenders from over-valued collateral and inform underwriting decisions and pricing.

Practical tips to protect value and avoid delays

  • Prepare the home: Clean, declutter, and make inexpensive fixes (loose handles, fresh paint) so condition issues don’t reduce value. Use our checklist to maximize appraisal outcomes: Preparing Your Property for Appraisal: Checklist to Maximize Value.
  • Share comps and documentation: Provide the appraiser with recent comparable sales, permits for upgrades, and a list of improvements.
  • Ask about appraisal type early: If you’re refinancing or using an automated underwriting system, ask whether a waiver or desktop appraisal is possible to save time and cost.
  • Consider a second appraisal or reconsideration: Lenders have specific processes for appraisal disputes—follow their steps and provide clear evidence of overlooked comps or factual errors.

Timing and cost expectations

Appraisal timelines vary by market and lender workload; a typical range is about one to two weeks from order to delivered report, though busy markets can take longer. Appraisal fees are usually paid by the borrower and generally run in the range of several hundred dollars; the exact amount depends on property type and local market conditions.

Common misconceptions

  • “Appraisals always match the contract price.” Not true—market conditions, atypical property features, and limited comps can produce differences.
  • “An appraisal is only for the lender.” While the lender orders it, appraisal results are valuable to buyers and sellers for pricing negotiations.

Regulatory and authoritative context

Appraisals are part of a broader regulatory framework intended to promote safe lending. The FHA helped formalize appraisal standards in the 20th century, and federal consumer protections and agency guidance affect appraisal practices today (see FHA and CFPB resources). For program-specific appraisal rules (FHA, VA, USDA, or GSEs), always consult the lender’s program guide.

Limitations and next steps

This article provides general guidance and does not replace personalized legal, tax, or financial advice. For complex disputes or valuation questions, contact your lender, a licensed appraiser, or a housing counselor. For procedural details on disputing an appraisal or understanding a lender’s reconsideration process, consult your lender and CFPB resources.

Sources and further reading

  • Federal Housing Administration (FHA): fha.gov
  • Consumer Financial Protection Bureau (CFPB): consumerfinance.gov

Internal resources referenced

Professional disclaimer: This content is educational and not individualized financial, legal, or tax advice. Consult your lender or a licensed professional for guidance tailored to your situation.