An appraisal is an estimate of a home’s value provided by a qualified professional appraiser. The appraisal is critical in determining how much of a mortgage the lender will approve for a home you wish to buy.
If the appraisal falls short of the purchase price you’ve agreed to, you could be refused a mortgage or offered a smaller loan amount than what you applied for. To make up the difference, you will have to come up with a bigger down payment or renegotiate a lower price with the seller.
To help avoid this, ask your realtor for “comps” (also called a Comparative Market Analysis or CMA) before you agree on the final purchase price. This allows you see if you’re paying a fair price and it is part of the information the appraiser uses to come up with the appraised value.
Federal law entitles you to a copy of the appraisal. If it comes in low, be sure to get your copy. You can ask the lender to do a new appraisal if you can show that the appraiser missed a significant feature of the home or did not consider a recent comparable sale at a higher price.
Remember, an appraisal is NOT the same thing as a home inspection. Although an appraiser will look at the condition of a home and may note major problems, this does not take the place of a home inspection. You should always have a professional home inspector make a comprehensive inspection before you finalize your home purchase.