An appraisal is a licensed appraiser’s opinion of a home’s market value based on comparable recent sales of homes in the neighborhood or area. Appraisals are required by the lender as part of the loan process and are ordered on behalf of a buyer’s lender to protect the interests of the lender. The lender’s underwriter will compare the appraisal price to the final purchase price of the home to ensure the buyer is not borrowing more than the property is worth.
In the event the home appraises lower than the agreed sales price, the buyer may be able to renegotiate a lower price with the seller. If the seller is unwilling to lower the price, the buyer’s lender may ask that the buyer put more money toward the down payment in order to make up the difference. If neither of those options work, and there is an appraisal contingency written into the contract, the buyer may choose to cancel the purchase.