Definition: A professional assessment of a property’s value conducted by a licensed appraiser, typically required for mortgage approval.
Explanation: An appraisal determines the fair market value of a home based on recent comparable sales, property condition, and location. Mortgage lenders require an appraisal to ensure they are not lending more than the property is worth. If the appraisal value comes in lower than the agreed purchase price, the buyer may need to renegotiate with the seller, make a larger down payment, or seek additional financing.
Example: A homebuyer agrees to purchase a property for $400,000, but the appraisal determines its value to be $390,000. Since the lender will only finance up to the appraised amount, the buyer must decide whether to cover the $10,000 difference or negotiate with the seller for a lower price.