A home appraisal is conducted by a buyer’s lender to confirm that the property’s value supports the amount being borrowed. Lenders want to make sure they’re not lending more money than the home is worth.
If the buyer were to default on their mortgage, the lender would need to sell the home to recover the funds. The appraisal protects the lender by ensuring the home’s value is greater than or equal to their financial investment.
Example:
If a buyer pays $400,000 for a home, but the appraisal comes in at $300,000, the lender won’t lend based on the full purchase price. They may reduce the mortgage amount or require the buyer to make up the $100,000 difference with a larger down payment.
Appraisals are ordered by the buyer’s lender and are usually paid for by the buyer as part of their financing process.
What Determines If an Appraisal Is Required?
Whether or not an appraisal is required depends on the buyer’s down payment and type of mortgage:
- When the down payment is less than 20%:
The mortgage must be insured by a mortgage insurance company. These insurers guarantee the lender against losses if the buyer defaults. While insured mortgages didn’t always require appraisals in the past, stricter lending regulations now mean that many lenders still request one for added security. - When the down payment is 20% or more:
There’s no mortgage insurance, meaning the lender takes on all the risk. In these cases, lenders always require an appraisal to confirm the home’s value before final approval.
Why Is the Appraisal Happening After Financing Was Approved?
Sometimes, sellers are surprised to hear that the appraisal is being done after the buyer has waived their financing condition. This can happen for a few reasons:
- The buyer has a large down payment, making the lender confident enough to approve financing before the appraisal.
- The buyer decided to increase their down payment after the offer was accepted.
- The buyer switched lenders, and the new financial institution requires an appraisal before releasing funds.
In any case, it’s typically just a formality and not a cause for concern.
How Do Appraisers Determine a Home’s Value?
Appraisers use several factors to calculate market value, including:
- Recent comparable sales (similar homes nearby that have recently sold)
- The home’s size, layout, and condition
- Upgrades or renovations that add value
- Location and surrounding amenities
- Overall market trends at the time of the appraisal
Their goal is to provide an unbiased, data-backed opinion of value that the lender can rely on.
What Happens If the Appraisal Comes In Low?
If the appraisal determines that the home’s value is lower than the purchase price, the buyer still has an obligation to close — but their lender may require them to adjust their financing.
Typically, this means the buyer will need to:
- Increase their down payment to cover the shortfall,
- Renegotiate the purchase price (if both parties agree), or
- Appeal the appraisal through their lender if they believe it was inaccurate.
As the seller, your main responsibility is to uphold the terms of the agreement. Your agent will guide you through any adjustments the buyer’s side needs to make to keep the transaction on track.
The Bottom Line
While appraisals can sometimes create anxiety for sellers, they’re a standard part of the financing process — designed to protect lenders and ensure homes are priced fairly.
Your GoWylde agent will stay in close communication with all parties involved, ensuring you’re informed every step of the way and that your sale moves smoothly from accepted offer to closing day.
