What Is Appraisal?
An appraisal is a licensed appraiser's formal opinion of what a property is worth — based on comparable sales, condition, and location. Lenders order one before funding a purchase or refinance to verify they're not lending more than the property's value. For investors, the appraisal controls your LTV on a refinance — at 75% LTV on a $200,000 appraisal, you get a $150,000 loan. Come in $15,000 low and you're leaving $11,250 on the table. Your ARV estimate and the formal appraisal should land within 5% — if they don't, your comp selection was off.
A professional assessment of a property's fair market value, typically required by lenders before approving a loan.
At a Glance
- What it is: A licensed professional's opinion of fair market value, using comps and standardized methodology.
- Why it matters: Lenders won't fund above appraised value — it's their protection against overpaying. For you, it's a reality check.
- When you need one: Purchase financing, refinance (including BRRRR exit), equity extraction.
- Who pays: The borrower — typically $400-$600 for a single-family, more for multifamily.
- Low appraisal options: Renegotiate with seller, cover the gap in cash, or walk away.
How It Works
The lender hires or approves a certified appraiser who inspects the property, pulls comparable sales (comps), and issues a written report stating market value. Same comp-based methodology you use for ARV — but the appraiser has MLS access, follows standardized adjustment protocols, and their number is what the lender uses. You don't control it.
Purchase. The lender orders the appraisal after you're under contract. If it comes in at or above your purchase price, you're good. If it comes in low, the lender won't fund above that number. You've got three choices: ask the seller to drop the price to match, bring extra cash to cover the gap, or invoke your appraisal contingency and walk.
Refinance. This is where appraisals matter most for investors. On a BRRRR cash-out refinance, the lender appraises the property at its post-rehab value. At 75% LTV, your loan amount = appraisal × 0.75. A $200,000 appraisal gets you $150,000. A $185,000 appraisal gets you $138,750 — that's $11,250 less capital recovered. The appraisal controls everything.
As-repaired vs. as-is. For rehab deals, some lenders order an "as-repaired" appraisal — the appraiser values the property as if renovations are complete. That number drives your refinance. Your ARV estimate during underwriting should align with what a conservative appraiser would conclude. If you're consistently 10% above appraisals, you're overestimating.
Real-World Example
Memphis BRRRR deal. You buy a 3-bed ranch for $92,000, rehab for $38,000. Your ARV estimate: $165,000 based on 4 sold comps. Six months later you refinance.
The appraiser pulls 3 comps — two match yours, one is a foreclosure that sold 8% below market. The appraisal comes in at $158,000. That's $7,000 under your estimate.
At 75% LTV: $158,000 × 0.75 = $118,500. Your all-in cost was $130,000. You recover $118,500 — $11,500 stays in the deal. Your cash-on-cash return is still solid, but you didn't get the full capital recycle you modeled. The 4% appraisal shortfall cost you $5,250 in loan proceeds.
If the appraisal had matched your ARV: $165,000 × 0.75 = $123,750. You'd have recovered $6,250 more. That's why conservative ARV estimation matters — the appraiser's number, not yours, sets the ceiling.
Pros & Cons
- Protects you from overpaying — an unbiased third party validates (or challenges) the purchase price.
- Lenders require it — you can't get conventional or DSCR financing without one.
- Same methodology as your ARV work — if your comps were sound, the numbers should align.
- Gives you leverage in negotiation — a low appraisal is ammunition to renegotiate.
- Documents value for equity tracking and portfolio analysis.
- You don't control it — the appraiser's comp selection and adjustments can differ from yours.
- Costs $400-$600+ — adds to closing costs on every purchase and refinance.
- Can kill deals — a low appraisal with an unwilling seller means you walk or pay the gap.
- Timing — appraisals add 5-10 days to the closing process.
- Thin comp markets — rural or unique properties get wider variance between appraisers.
Watch Out
- Modeling risk: Don't assume your ARV and the appraisal will match. Conservative investors target the middle of the comp range, not the top. A 5% shortfall on a $200,000 property = $7,500 less on a 75% LTV refinance.
- Execution risk: Order the appraisal early in the refinance process. If it comes in low, you've got time to contest (costly, slow) or line up a backup lender. Don't discover a shortfall the week before your hard money balloon.
- Exit risk: In BRRRR, the refinance appraisal is your exit. If it's low, you're either leaving capital in the deal or extending your hard money term — and those extension fees add up fast. Know your lender's appraisal dispute process before you need it.
Ask an Investor
The Takeaway
An appraisal is the number that controls your loan amount — on purchase and refinance. You can't fund above it. For BRRRR investors, the refinance appraisal determines how much capital you get back. Estimate ARV conservatively, use sold comps (never listings), and target the middle of the range. If the appraisal comes in low, you've got options — renegotiate, cover the gap, or walk. But the best move is not needing those options in the first place.