What Is a Home Appraisal and Why Does It Matter in Minnesota?

A home appraisal is an independent, professional opinion of what a property is worth, ordered by your lender before it commits to your loan. It matters because the lender bases your loan on the lower of the purchase price or the appraised value. If the appraisal comes in below the price you agreed to pay, the gap has to be resolved before you can close.

Why the lender needs an appraisal

The home you are buying is the collateral for your mortgage. If a borrower stops paying, the lender has to sell the property to recover what it is owed, so it will not lend more than the property is worth.

The lender does not treat your purchase price as proof of value. It asks a licensed or certified appraiser, who has no financial stake in the sale, for a separate opinion.

Who orders the appraisal and who pays

Your lender orders the appraisal. The appraiser is chosen through a process designed to keep them independent from the loan officer, the buyer, and the seller.

You, the buyer, pay for it. The fee is typically paid when the appraisal is ordered and not at closing, which makes it one of the early costs of buying. It can be higher for larger properties, unusual property types, and rural locations where similar sales are harder to find. Your lender will tell you the amount.

What the appraiser looks at

An appraisal has two parts. The first is a visit to the property. The appraiser notes its size, layout, bedrooms and bathrooms, the age and condition of major systems, the finishes, the lot, the garage, and anything else that affects value.

The second part is a comparison with recent sales of similar homes nearby, often called comps. The appraiser adjusts each sale price for differences. A comp with an extra bathroom is adjusted down, and a comp that is older or in worse condition is adjusted up. The adjusted sales lead to a final opinion of value.

The findings go to your lender in a formal report. You have the right to a copy, so ask your lender for it and read the comps the appraiser used.

What happens when the appraisal comes in low

When the appraisal meets or exceeds the purchase price, the loan moves ahead at the agreed price. When it comes in low, the lender will not finance the difference. For example, if you agreed to pay $320,000 and the home appraised at $298,000, there is a $22,000 gap to resolve. There are five ways to resolve it.

• Renegotiate the price. The seller may agree to lower the price to the appraised value, although sellers vary in their willingness to do so.
• Cover the gap in cash. You keep the agreed price and bring more of your own money to closing.
• Split the difference. The seller lowers the price partway and you cover the rest.
• Ask for a reconsideration of value. This is a formal request, sent through the lender, asking the appraiser to review a specific error or a sale that was overlooked. The appraiser is not required to change the value.
• End the contract. If your purchase agreement includes an appraisal contingency and no solution works for both sides, you may be able to cancel and have your earnest money returned.

A purchase agreement is a legal contract. Please confirm how your contingency works with your attorney, and confirm loan questions with your lender.

Why an appraisal can come in low

• Prices are rising quickly. Appraisers rely on past sales, which may not reflect the newest price level.
• The offer was well above the asking price. The appraiser measures market evidence, not what one buyer was willing to pay in a competitive moment.
• Similar sales are scarce. In areas with few sales or very unusual homes, the available comps may not capture the full value of the property.

How to prepare before you make an offer

If you are thinking about offering above the asking price, talk through the appraisal risk with us before you submit the offer. Decide ahead of time whether you have the cash to cover a possible gap.

We also suggest including an appraisal contingency unless you have a specific, well-considered reason not to.

Common questions

Can I choose my own appraiser? No. The lender selects the appraiser through a process meant to keep the appraisal independent.

How long does the appraisal take? It varies with the appraiser's workload and how complex the property is. Your lender can give you the expected timing.

Can the seller see the appraisal? The appraisal belongs to the lender, and you have the right to a copy. The seller does not, although your agent may share relevant details with the seller's agent while negotiating a low appraisal.

What if I disagree with the value? You can ask for a reconsideration of value through your lender and provide the sales or adjustments you believe were missed. You can also pay for a second appraisal, though the lender is not required to use it.

An appraisal is information, and there is usually a path forward once you know your options. If you have questions about a home you are considering, send us a message, or read our step-by-step guide to the buying process.