# Appraisal: Definition, How It Works, and Types of Appraisals

> **Definition**
>
> An appraisal is a professional assessment of a property's or asset's market value, typically required for insurance, taxation, or mortgage purposes.

## What Is an Appraisal?

An appraisal is a [valuation](https://www.investopedia.com/terms/v/valuation.asp) of property, such as real estate, a business, a collectible, or an antique, by the estimate of an authorized person. The authorized appraiser must have a designation from a regulatory body governing the appraiser's jurisdiction. Appraisals are typically used for insurance and [taxation](https://www.investopedia.com/terms/t/taxation.asp) purposes or to determine a possible selling price for an item or property. In many cases, lenders require appraisals before approving mortgages.

### Key Takeaways

*   An appraisal is an assessment of the fair market value of a property, business, antique, or even a collectible.
*   Appraisals estimate the value of items that are infrequently traded and unique.
*   The authorized appraiser must have a designation from a regulatory body governing the jurisdiction of the appraiser.
*   Appraisals can be done for many reasons, such as tax purposes when valuing charitable donations.
*   Home appraisals can positively or negatively impact the sale of a house or property.
*   Appraisals help banks and other lenders avoid losses on a loan.  
    

![Appraisal: An assessment of the fair market value of a property by an authorized person.](https://www.investopedia.com/thmb/bJVVixWcCa-x5MckUlFkiVXmaWY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/appraisal.asp-final-d5b8fc7c328e402484441a2d908244f0.png)

*— Investopedia / Julie Bang*

## Understanding Appraisals

Appraisals are used in many types of transactions, including real estate. If a home valuation, for example, comes in below the amount of the purchase price, mortgage lenders are likely to decline to fund the deal. Unless the prospective buyer is willing and able to come up with the difference between the [appraised value](https://www.investopedia.com/terms/a/appraised_value.asp) and the [lender's](https://www.investopedia.com/terms/l/lender.asp) financing offer, the transaction will not go forward.

The appraiser can use any number of valuation methods to determine the appropriate value of an item or property, including comparing the [current market value](https://www.investopedia.com/terms/c/cmv.asp) of similar properties or objects.

Appraisals are also done for tax purposes when determining the value of [charitable donations](https://www.investopedia.com/terms/c/charitabledonation.asp) for [itemized deductions](https://www.investopedia.com/terms/i/itemizeddeduction.asp). Deductions can reduce your taxes owed to the IRS by deducting the value of your donation from your taxable income.

Appraisals can also be a helpful tool in resolving conflicts between heirs to an estate by establishing the value of the real estate or personal property to be divided.

## Types of Appraisals

### Home Appraisals

A home valuation is necessary when buying and selling a home, as well as when refinancing an existing mortgage. A [refinance](https://www.investopedia.com/terms/r/refinance.asp) is when a loan or mortgage is reevaluated and updated to current interest rates and new terms.

An appraisal determines the home's value to ensure that the price reflects the home's condition, age, location, and features, such as the number of bathrooms. Valuations also help banks and lenders avoid lending more money to the borrower than the house is worth.

In the event of [default](https://www.investopedia.com/terms/d/default2.asp), when the borrower can't make the payments anymore, the bank uses the appraisal to value the home. If the home is in [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp), whereby the bank takes possession of it, it must be resold to help the lender recoup any losses from making the mortgage loan.

It's important to remember that when a bank lends for a mortgage, it gives the full amount of the home's value to the seller on the date it's sold. In other words, the bank is out the money and, in return, has a promise to pay, plus interest, from the borrower. As a result, the valuation is important to the lending process since it helps the bank avoid losses and protect itself against lending more than it might be able to recover if the borrower defaults.

### Note

A home appraisal is separate from a home inspection, which is completed to determine the condition of the home and identify any potentially serious issues before a buyer moves forward with closing.

### Collectibles or Antiques

Professional appraisals can be done for many items, including [collectibles](https://www.investopedia.com/terms/c/collectible.asp), antiques, or grandma's silver. Ideally, you'll want multiple valuations for an item from accredited professionals. Appraisers might [charge an hourly rate or a flat fee](https://www.investopedia.com/articles/real-estate/090716/how-much-do-home-appraisers-make.asp). 

A certified appraiser's valuation will likely be fair and unbiased, whereas the local collectible shop is incentivized to offer you less for the item. Also, owners can get an [idea of an item's value](https://www.investopedia.com/articles/personal-finance/100115/how-value-jewelry-inherited-loved-one.asp) by checking collectible magazines and online appraisal websites. Most websites charge a small fee, such as $10, to value an item. Of course, obtaining a value online is done through photos of the item and is not an official valuation, but it should give you an idea of what it's worth before proceeding. If you decide to pursue an appraisal, the American Society of Appraisers has thousands of members and is a great place to begin searching for an accredited professional.

### Appraisals and Insurance

Some types of insurance policies also require appraisals of goods being insured. Homeowners and renters insurance policies protect policyholders against losing [personal property](https://www.investopedia.com/terms/p/personalproperty.asp) due to theft or damage. These blanket policies cover items up to a preset dollar limit. Obtaining an appraisal of a home's contents creates an inventory of the owner's property and establishes its value, which helps to ensure a swift settlement if a claim is filed.

When the value of specific items exceeds a homeowners policy limit, the policyholder may wish to obtain additional insurance that covers [luxury items](https://www.investopedia.com/terms/l/luxury-item.asp) such as jewelry or collectibles, including art objects and antiques. Before issuing personal property insurance policies for high-end items, many [insurance underwriters](https://www.investopedia.com/terms/i/insurance-underwriter.asp) require applicants to have the object appraised. The appraisal creates a record of the item's existence and description. It also helps establish the item's actual value.

Some insurance contracts include an appraisal clause that specifies the owner agrees to obtain an appraisal from a mutually agreeable expert in the event of a dispute between the owner and the insurance company. Neutral appraisals can speed the resolution of a settlement and keep disputes from escalating into lengthy and expensive lawsuits.

> **Tip**
>
> The actual amount you pay for a home appraisal can depend on where the property is located and how much time is required to complete the appraisal.

## Home Appraisal Process and Cost

The [home appraisal process](https://www.investopedia.com/home-appraisal-checklist-5085295) typically begins after a buyer makes an offer on a home and the seller accepts that offer. The buyer's mortgage lender or broker may order the appraisal on their behalf, though the buyer is typically expected to pay for it out of pocket. On average, a home appraisal for a single-family property runs around $500.

Once the appraisal is ordered, the appraiser will schedule a time to visit the property. The appraiser will then conduct a thorough review of the home's interior and exterior to determine its worth. This may require them to take measurements or photos of the property. Appraisals can take a few minutes to a few hours to complete, depending on the details of the home and the appraiser's methods.

After visiting the home, the appraiser will use the information they've collected to create a reasonable estimate of the home's value. At this stage, the appraiser will also look at the values of comparable homes in the area. Using these comps and what they've learned from visiting the home, the appraiser will prepare an appraisal report with a figure representing their perceived value of the home.

A copy of this appraisal report is then shared with the buyer and the buyer's mortgage lender. It can take anywhere from a week to 10 days for the report to be completed. Sellers can also request a copy of the report.

If a buyer disagrees with the appraisal report, they can request a reconsideration from the lender or opt to pay for a second appraisal.

### How To Improve Your Home's Appraisal Value

The appraisal process is meant to be objective, but appraisers are human. Good curb appeal and clean, uncluttered rooms send a message of a well-maintained home. And they can be achieved without a great deal of time or expense. There are some easy ways to quickly [improve the appraised value](https://www.investopedia.com/articles/personal-finance/032015/strategies-increase-home-appraisal-value.asp) of your home:

*   De-clutter your home, make minor repairs, and freshen the paint to show the home is well-maintained.
*   Clean up your yard and clear out leaves or dead plants to improve curb appeal.
*   Point out any major improvements you've made to the appraiser in case they miss them.

On the other hand, you should avoid big, expensive improvements just to increase your home's appraisal value. They generally don't pay off.

Make sure you know your rights as well. If you hire the appraiser to determine your home’s value, the appraisal belongs to you. If you’re refinancing your mortgage and the lender hires the appraiser, the lender is required to provide you with a copy–possibly for a reasonable fee–of the appraisal and any other home value estimates.  
  
If you think the appraiser has the value wrong, first review the written appraisal for errors. Check whether the comps the appraiser chose are reasonably similar to your home. If you still think the price is incorrect, you can appeal the valuation with your lender or ask it to order a second appraisal.   

## How Much Does a Home Appraisal Cost?

On average, a home appraisal costs $500. The price may be higher for appraisals of multi-family homes or properties that are above average in size. The buyer is most often responsible for paying appraisal fees when the appraisal is ordered.

## Is a Home Appraisal Required?

A home appraisal is almost always required when purchasing a home with a mortgage. Lenders use the appraisal to determine whether the home is worth the amount the buyer is asking to borrow. A buyer may not require an appraisal if they're paying cash for a home rather than taking out a mortgage loan.

## Can the Buyer Be Present During an Appraisal?

With the appraiser's approval, both buyers and sellers can ask to be present at the home appraisal. In lieu of attending themselves, buyers and sellers can request that their agents be allowed to attend the appraisal. However, typically, only the appraiser is present, as it's less common for buyers or sellers to show up.

## What Happens If the Appraisal Comes in Too Low?

If a home appraisal comes in below what the buyer has agreed to pay, there are several options they could choose from. The first is to ask the seller to renegotiate the home's price so that it aligns with the home's appraisal value. The next option is to pay the difference between the appraisal value and the asking price out of pocket. Buyers could also use a [piggyback mortgage](https://www.investopedia.com/terms/p/piggy_back_mortgage.asp) to make up the difference between the home's value and its sales price.

## Do I Need an Appraisal to Refinance a Mortgage?

  
In most cases, yes. Lenders use appraisals to determine a home's value for refinancing mortgages like they do for purchase mortgages. There are a couple of exceptions, however. In some cases, you will not need a valuation if you are taking out an [FHA refinance loan](https://www.investopedia.com/terms/f/fha-streamline-refinance.asp) if it is what is called a "[streamline](https://www.investopedia.com/terms/f/fha-streamline-refinance.asp)" refinance loan. If you hold a VA-backed loan, you will need an appraisal if you plan to take out a cash-out refinance loan.

  

## The Bottom Line

Although many people associate appraisals with the homebuying process, any unique item can be appraised. Appraisals are usually essential in setting the price of an item or property, so getting a good appraisal is vital if you're purchasing or selling a home.

> **Article Sources**
>
> 1.  Internal Revenue Service. "[Charitable Contribution Deductions](https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions)."
>     
> 2.  American Society of Appraisers. "[Find an Appraiser](https://www.appraisers.org/find-an-appraiser)."
>     
> 3.  National Association of Realtors. "[2023 Appraisal Survey](https://www.nar.realtor/sites/default/files/documents/2023-appraisal-survey-09-05-2023.pdf)," Page 33.
>     
> 4.  Consumer Financial Protection Bureau. "[§ 1002.14 Rules on Providing Appraisals and Other Valuations](https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1002/14/)."
>     
> 5.  U.S. Department of Housing and Urban Development. "[Streamline Your FHA Mortgage](https://www.hud.gov/program_offices/housing/sfh/ins/streamline)."
>     
> 6.  VA Mortgage Center. "[Everything You Should Know About VA Appraisals.](https://www.vamortgagecenter.com/answers/va-loan-appraisal-vs-home-inspection/)"