Home Appraisals: How do they work?

You’ve found your dream home. The asking price is $200,000 — an amount you’ve already been pre-approved for by your financial institution. But is the home really worth that amount? That’s the question at the heart of the home appraisal. The value of the property will determine how much a lender is willing to loan to you.

Spring in Suburbia

Azalea bushes in pink and white decorate the front porch of this Cape Cod Home

A home appraisal will determine if the asking price is lower or higher than the actual value of the property. A real estate appraisal is the expert opinion of a certified, state-licensed professional who determines the value of a piece of property.

Home Appraisal Methods

There are two primary appraisal methods for residential property:

  • Sales comparison approach – The appraiser compares the property with three to six similar homes that have sold in the area, often called comparables or comps. The analysis considers things such as lot size, square footage of finished and unfinished space, style and age of the house, as well as other features such as garages and fireplaces.
  • Cost approach – The appraiser estimates the cost to replace the structure if it was destroyed. The appraiser then looks at land value and depreciation to determine the property’s worth. This method is used more for new construction homes.

Home Appraisal Process

An appraiser gathers information from a number of sources, but the process often begins with a physical inspection of the property inside and out. Additionally, the appraiser may look at county courthouse records and recent reports from the local real estate multiple listing service. The appraisal report generally includes:

  • An explanation of how the appraiser determined the value of the property.
  • The size and condition of the house and other permanent fixtures, along with a description of any improvements that have been made and the materials used.
  • Statements regarding any required repairs.
  • Notes about the surrounding area, such as new or established development.
  • An evaluation of recent market trends of the area that may affect the value, and a comparative market analysis that supports the appraisal.
  • Maps, photographs and sketches.


Contact Members 1st Mortgage Services at (800) 283-2328, ext. 6026. One of our mortgage experts will be happy to help you.

Also ask us about our extensive list of Home Equity Loans, Mortgage Loans, Construction Loans and more!


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