Mortgage Appraisal Process

Mortgage Appraisal Process

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Mortgage appraisal is one of critical parts of securing a mortgage and owning your dream house. But first things first, what is a mortgage appraisal? Well, mortgage appraisal is the unbiased evaluation of the actual worth of the house that a buyer intends to buy. It is performed by a qualified and professional who is licensed in the field. The home appraisal is essential in for the mortgage lender to approve the buyer’s financing.

Why are mortgage appraisals necessary before buying a house? Mortgage appraisals are done by the buyer’s lender to protect their interest by ensuring that the property they are lending the large sum of money for is worth the price. Lenders will finance only based on the Appraised value of the property. A mortgage appraisal also protects the buyer’s interest by preventing them from overpaying for the house.

Mortgage appraisal process

Understanding mortgage appraisal process can help you get the best value for your dream house. What goes into mortgage appraisal process? Well, here is what you need to know about mortgage appraisal process.

Who orders mortgage appraisal? 

Mortgage appraisals are ordered by the buyer’s lender. However, the buyer is required to pay the fees that incur. Most mortgage lenders require the appraisal fee to be paid upfront for two reasons. Firstly, if the deal falls through, the buyer is still responsible for the cost of the appraisal. Secondly, it also acts as a method to get the buyers to commit to the lender once they have paid the fees.
Mortgage Value vs. Appraised Value

If the Appraisal comes in equal to or higher than the sales value, then the sale continues normally. However, if the appraised value come in lower than the sales price, the seller can either lower the sales price to match the appraised value or the buyer has a right to void the contract, provided they had included the appraisal contingency in their offer. In a competitive market, buyer’s may choose to waive the Appraisal Contingency, but they do that at their own risk. Lenders will finance the loan only based on the appraised value, so buyers may need to come up with additional funds if they choose to move forward with the sale.

Three Approaches to Appraisal:

There are three different approaches used by the appraisers to arrive at the appraised value:

  1. Sales Approach

Sales approach is the most commonly used approach for residential properties, as it is based on comparing the subject property with the most recent sales within the neighborhood and time-frame. The comparison is in terms of lot size, square footage, age, location and other import home features. Typically, appraisers try to look for comparable properties within the same neighborhood that have sold within a specific time-frame, usually within 2-3 months or 6 months at the most, as the real estate market shifts periodically. Sometimes if the appraisers cannot find enough sales within the exact same neighborhood, they look for similar properties in the extended neighborhood, within half a mile or so, so as to keep the other variables such as schools, accessibility etc. the same as much as possible. The comparable properties used by the appraiser are listed in the Appraisal Report presented to the lender. The report includes the detailed comparison of the features of the subject property with the comparable properties with an assigned value for each feature that the subject property has or is missing when compared to the comparable properties. The final appraised value for the property has arrived after intense calculation and comparison.

  1. Cost Approach 
    The cost approaches a real estate valuation method that surmises that the price a buyer should pay for a piece of property should equal the cost to build an equivalent building. In cost approach appraisal, the market price for the property is equal to the cost of land plus cost of construction, less depreciation.
  2. Income Approach 
    The income approach is a real estate appraisal method that allows investors to estimate the value of a property by taking the Net Operating Income of the rent collected and dividing it by the capitalization rate. The income approach is typically used for evaluating income-producing properties.

How does an appraiser arrive at the Appraised Value of the property?

When an appraiser sets foot on the subject property, the process begins with taking measurements of the primary living areas of the house, taking photos and making a note of the special features of the property. Then he runs a detailed comparison of the subject property with the recently sold homes. They may also use an active and pending listing sometimes. Thereafter the net figure is arrived based on how the subject property stacks up as compared to the comparable properties. This is the value that the lender will use to establish the mortgage amount.

Mortgage appraisal is a crucial process that protects both the lender and the home buyer from over-paying for the house. However, it is always important to remember that even though there are guidelines, but the appraisal is still an opinion of the professional assigned to the tasks and sometimes two appraisals for the same property may differ. It’s not a common phenomenon, but can happen sometimes, especially in cases when the appraiser is not very familiar with the area the subject property is located in. However, in most cases appraisal it is a very reliable way of coming up with a valuation of the property for the mortgage lenders.


Controversies can sometimes arise when a comparison of a lesser value is compared to the house being appraised. What happens when such a controversy emerges? There is little that one can do because the appraiser is a trusted choice of the lender. Buyers can look for another independent appraiser to get the second opinion. But nonetheless, lenders are not bound to accept the value arrived by an independent appraiser.


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