Appraisal
An independent, licensed estimate of a property's value used by lenders to confirm collateral worth before funding. On rehab loans, lenders often order a subject-to (after-repair) appraisal.
An appraisal is an independent, professional opinion of a property's market value, prepared by a licensed or certified appraiser. Lenders order one before funding to confirm the collateral is worth enough to support the loan — it's the lender's reality check on value, separate from the buyer's or seller's claims.
Why lenders require it
A loan is only as safe as the property securing it. The appraisal protects the lender (and you) from overpaying or over-lending: if you're buying at $300,000 but the property appraises at $270,000, the lender sizes the loan to the lower value, and you've learned the price may be too high. The appraised value drives the LTV and, on rehab deals, the ARV-based caps.
The three approaches to value
Appraisers reconcile up to three methods:
- Sales comparison — recent comparable sales, the dominant approach for residential. Adjusts comps for size, condition, location, and features.
- Income approach — value from NOI and a cap rate; central for rentals and multifamily.
- Cost approach — land value plus the depreciated cost to rebuild; used for new or unusual properties.
Appraisal types in investor lending
- As-is appraisal — values the property in current condition (sets as-is value).
- Subject-to (ARV) appraisal — values the property as if a defined scope of work were already complete. Essential on fix-and-flip loans, where the lender needs the projected finished value. The appraiser reviews your scope of work and renders the after-repair value.
- Form 1007 rent schedule — accompanies many DSCR appraisals, providing the appraiser's market-rent estimate used in the DSCR calculation.
Appraisal vs. BPO vs. AVM
Appraisals are the most rigorous (and most expensive/slow) valuation. For speed or cost, lenders sometimes use a BPO (broker price opinion) or an AVM (automated model) instead — common on some bridge and hard money deals where turnaround matters more than a full appraisal.
What investors should know
- It can kill or reshape a deal. A low appraisal reduces your loan and may require more cash or a renegotiation.
- Conservative comps win. Appraisers pull conservative, recently-sold comps; underwrite your ARV the same way so you're not surprised.
- Cost and timing. An appraisal typically runs a few hundred dollars and a few days to a couple weeks — often the main driver of how fast a loan can close.
- Subject-to accuracy matters. On a flip, give the appraiser a clear, detailed scope of work; a vague scope yields a conservative ARV.
Frequently asked questions
What is a subject-to appraisal?
An appraisal that values a property as if a defined scope of work were already complete — producing the after-repair value (ARV). Fix-and-flip lenders order these because they need the projected finished value to size the loan. The appraiser reviews your scope of work and values the property as renovated.
What happens if the appraisal comes in low?
The lender sizes the loan to the lower appraised value, not your contract price. That means a larger down payment, a renegotiation with the seller, or walking away. A low appraisal is the market telling you the price may be too high — which is why you should underwrite value conservatively from the start.
Do all investor loans require a full appraisal?
Not always. Full appraisals are the most rigorous but slowest and priciest. Some bridge and hard money lenders use a broker price opinion (BPO) or an automated valuation model (AVM) instead when speed matters more than a full appraisal. DSCR and most purchase loans typically require a formal appraisal.