All About Home Appraisals: What Every Buyer and Seller Should Know

The appraisal is one of the most consequential — and least understood — steps in a real estate transaction. It can confirm a sale price, derail a deal, or force a renegotiation. Whether you're buying or selling, understanding how appraisals work gives you a significant advantage.

What Is a Home Appraisal?

A home appraisal is a professional opinion of a property's market value conducted by a licensed or certified real estate appraiser. It is ordered by the lender — not the buyer or seller — and paid for by the buyer as part of the loan process.

The appraiser's job is to protect the lender: the bank wants to ensure it's not lending more than the property is worth. The appraised value becomes the ceiling on which the loan is based.

When Is an Appraisal Required?

An appraisal is required any time a buyer is financing the purchase with a mortgage. This includes conventional loans, FHA loans, VA loans, and jumbo loans. Cash buyers are not required to obtain an appraisal — though some choose to for their own protection.

How Does the Appraiser Determine Value?

Appraisers primarily use the sales comparison approach — the same methodology used in a Comparative Market Analysis (CMA). They identify recent sales of similar properties (comps) in the area and make adjustments for differences in size, condition, location, amenities, and other factors.

Key factors appraisers consider include:

• Square footage and lot size
• Number of bedrooms and bathrooms
• Property condition and quality of construction
• Age and updates/renovations
• Location within the neighborhood
• View, amenities, and special features
• Recent comparable sales (typically within the last 6 months)

Common Appraisal Issues in Los Angeles

LA's real estate market presents specific challenges for appraisers:

• Rapidly changing prices: In a fast-moving market, the comps an appraiser uses may be from 90–180 days ago, potentially lagging behind current pricing.
• Unique properties: Hillside homes, architectural properties, and heavily remodeled homes are difficult to comp accurately — there may be few true comparables.
• ADUs and unpermitted space: Unpermitted additions are typically excluded from the appraised square footage, which can result in a lower value than expected.
• Neighborhood transitions: Rapidly gentrifying neighborhoods can create wide valuation gaps between recent sales.

What Happens When the Appraisal Comes in Low?

This is the scenario both buyers and sellers fear most. If the appraised value is below the agreed purchase price, several outcomes are possible:

• Seller reduces the price to meet the appraised value
• Buyer pays the difference out of pocket (covering the "appraisal gap")
• Both parties split the difference through negotiation
• Buyer cancels using the appraisal contingency and recovers their deposit
• Buyer challenges the appraisal by submitting additional comparable sales for the appraiser's review (called a reconsideration of value)

In competitive markets, buyers sometimes include an appraisal gap guarantee in their offer — a commitment to cover a certain amount of any gap between the appraised value and purchase price. This makes offers more attractive to sellers. For more on how this fits into offer strategy, see our guide on how to write offers that get accepted.

The Appraisal Contingency

California's standard purchase agreement includes an appraisal contingency, which gives the buyer the right to cancel and recover their deposit if the property does not appraise at or above the purchase price. Buyers in competitive markets sometimes waive this contingency to strengthen their offer — a significant risk that should only be taken with a full understanding of the consequences.

Appraisal vs. CMA: What's the Difference?

Both use comparable sales to estimate value, but they serve different purposes and are held to different standards. A CMA is prepared by a real estate agent to help set a listing price or inform a purchase offer. An appraisal is conducted by a licensed third party for the lender and carries legal weight in the transaction. For a full explanation of how CMAs work, see our post on home values, CMAs, and comps.

Tips for Sellers Before the Appraisal

Sellers can take steps to support a strong appraisal result:

• Provide the appraiser with a list of recent upgrades and renovations, including costs
• Ensure the property is clean and accessible — first impressions matter even to appraisers
• Provide a list of relevant comparable sales your agent has identified
• Point out features that may not be obvious, like permitted additions or high-end finishes