When a home is being sold or refinanced, the bank must order an independent appraisal to assure it is lending against the property's actual value. Localities appraise properties regularly to assess property taxes.

How happy you are with how a property is appraised may depend on whether you are the seller, a potential buyer, or a taxpayer. Whatever your interest, it's essential to know what to do if the appraisal comes in lower—or higher—than you had expected. Your sales price, your mortgage, and your taxes are all at stake.

Not all homes must be appraised. For cash buyers, you can opt out. This often occurs when home prices are up, and inventory is low. However, if you are financing your new home, you will have to get an appraisal. Most housing experts agree, as well, that if you are paying for your house in cash, it's still a good idea to know its worth.1

If you are a seller or a potential homebuyer, it can help you understand how various appraisals work, especially if you need to challenge them.

Types of Appraisals

If you're unhappy with a home appraisal, first find out what type of appraisal took place.

Online Appraisal

Some mortgage companies perform an electronic appraisal (often to cut costs) where they do an Internet search of comparable homes ("comps" is the appraisal term) and base the value of your home on the comps and other factors. With an online appraisal, information such as a newly renovated kitchen or bathroom or other items that might impact an assessment may not be visible online.

County Appraisals

Another type, often used for county appraisals, is the drive-by appraisal, where somebody may take a current picture of the home and research comps, again, without going into the home.

Traditional Appraisals

Finally, the traditional appraisal occurs when the appraiser enters the home, collects current information, asks questions about any updates to the house, and then makes a comparison to other homes similar to yours in your neighborhood or town.

These traditional appraisals may cost several hundred dollars and occur when a home is sold to a new owner.

How to Challenge a County Appraisal

County appraisals are conducted so property taxes can be assessed based on the current value of the home. If you aren't planning to move in the near future and when the assessment comes in too low in your opinion, remember that your property tax bill will also be lower.

If you're planning to sell your home in the near future, call your county auditor. Most localities allow you to appeal the assessment by providing evidence of upgrades and remodeling.

Finally, when valuing a property, real estate agents are more likely to research the comps in your area instead of using the county's or locality's assessed value, so it may not be as important as you think.

How to Challenge Other Appraisals

If you're purchasing a home and the appraisal came back too low, resulting in the lending institution not approving your mortgage loan, you have several options.

First, as the purchaser of the appraisal, you have the right to see the appraisal. Work with the seller's real estate agent to ensure that all upgrades, improvements, and large-scale repairs were factored into the appraisal. Next, ask the seller's real estate agent to speak with the appraiser about the comps they considered when establishing a selling price.

You can request that the appraiser reexamine their findings based on your research of comps in the area. If there are very few recent sales in the area, the appraiser may have found similar homes in other areas that weren't as comparable as originally thought. If you can provide factual information to the appraiser, they may reconsider their findings.

Finally, when challenging the appraisal, remember that people have feelings, and they won't want to admit that they're wrong to somebody who has put them on the defensive. Respectfully challenge the appraisal, always keeping conversations business-like. You can also ask your broker to help you plan out what to say to an appraiser or even act as a liaison between the two of you.

The Bottom Line

Sometimes a low appraisal can work in your favor regardless of whether you're the buyer or the seller.

If you're purchasing a home, a low appraisal may allow you to pay less for the house, and a lower appraisal often means lower county taxes. And remember that appraising does not always accurately reflect the current market conditions.