Quick Answer
When you finance a home, your lender orders an appraisal so it doesn't lend more than the property is worth. A licensed appraiser inspects the home and compares it to recent nearby sales to reach a value. If the appraisal comes in below your agreed price, you may face an appraisal gap to solve before closing.
- Who orders it
- Your mortgage lender
- Who pays
- Usually the buyer
- Who performs it
- A state-licensed appraiser
- Main purpose
- Protect the lender's collateral
- Typical basis
- Recent comparable sales
Why Lenders Require an Appraisal
A mortgage is secured by the home itself, so the lender needs to know the property is worth at least what it's lending. The appraisal is that safeguard. It protects the bank from over-lending and, indirectly, protects you from overpaying.
Even a strong offer can hinge on the appraisal. If you're paying cash you can waive it, but most financed purchases in Central Indiana include an appraisal step tied to loan approval.
How an Appraiser Determines Value
Most appraisers use the sales comparison approach: they look at recently sold homes nearby that are similar in size, age, and condition, then adjust for differences like an extra bath, a finished basement, or a larger lot. The result is a supported opinion of value, not a guess.
This differs from a comparative market analysis your agent prepares. An appraisal is a formal, licensed valuation used by the lender, while a market analysis helps set a listing or offer price.
When the Appraisal Comes in Low
Sometimes an appraisal lands below the contract price. When that happens you generally have options: the buyer can cover the difference in cash, the parties can renegotiate the price, or the buyer can walk away if the contract includes the right contingency.
This shortfall is called an appraisal gap. Knowing how you'd handle one before you write an offer keeps a low number from derailing your purchase.
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Frequently Asked Questions — Home Appraisal
How long does a home appraisal take?
The on-site visit is often under an hour, but the written report usually takes several days to a week to reach your lender.
Is an appraisal the same as a home inspection?
No. An appraisal estimates value for your lender, while an inspection evaluates the home's condition for you as the buyer.
Can I use my own appraisal?
For a mortgage, the lender orders the appraisal through an approved appraiser, so you generally can't substitute one you ordered yourself.