Appraisal

Purpose of the Mortgage Appraisal

The appraisal serves the lender's interest by verifying that the property's value supports the loan-to-value (LTV) ratio required by the loan program. If the appraised value comes in below the purchase price, the borrower may need to increase the down payment, renegotiate the price, or dispute the appraisal through the lender's reconsideration of value (ROV) process. The appraisal also identifies property condition issues that could affect habitability or marketability.

Appraisal Process and Standards

Appraisers must be licensed or certified under state regulations and follow the Uniform Standards of Professional Appraisal Practice (USPAP). For most residential transactions, the appraiser performs an interior and exterior inspection, photographs the property, and develops a value opinion using comparable sales (the sales comparison approach). The standard residential appraisal report uses Fannie Mae Form 1004 / Freddie Mac Form 70.

Under the Appraiser Independence Requirements (AIR) established by the Dodd-Frank Act, lenders cannot influence or pressure appraisers regarding value conclusions. Most lenders use Appraisal Management Companies (AMCs) to assign and manage appraisal orders.

Costs and Waivers

Typical residential appraisal fees range from for standard single-family properties, with higher fees for complex properties, multi-unit buildings, or rural locations. The borrower pays the appraisal fee, which appears on the Loan Estimate. Some refinance and purchase transactions may qualify for an appraisal waiver through the AUS, where the lender accepts a data-driven valuation in place of a traditional appraisal. Waivers are not available for all transactions and are subject to program-specific eligibility requirements.