Appraisal

An appraisal is an independent estimate of a property's market value, produced by a licensed appraiser at the lender's request during the under-contract period. The appraisal is the lender's risk-management tool: it verifies that the property is worth enough to support the loan amount, ensuring the lender's collateral position is adequate.

How it works: the appraiser visits the property, measures it, photographs it, and reviews recent sales of comparable properties in the neighborhood. They produce a report that includes selected comparable sales, adjustments made to each comp for differences from the subject property (size, condition, lot, amenities), and a reconciled value opinion. The report is shared with the lender, who uses it to confirm the loan amount is appropriate against the home's value.

Why it matters: when the appraisal comes in below the contract price, the lender will only fund up to the appraised value. The buyer either has to bring the gap in cash, renegotiate the price, or (if the appraisal contingency is in place) terminate the contract. Sellers facing low appraisals have several response options, covered in detail in the low-appraisal article.

Common gotcha: an appraisal is not a comment on whether the buyer is overpaying for the home in absolute terms. It's a comment on whether the lender is willing to finance against that value. A buyer who genuinely wants a property at the contract price (because it suits them, because the market is moving) can rationally accept a low appraisal and bring extra cash. The appraisal contingency frames this choice; waiving it shifts the risk entirely to the buyer.