Mortgage Glossary
Appraisal
A professional opinion of a home's market value, required by the lender to make sure the loan amount is appropriate for the property.
What It Means
A mortgage appraisal is an independent assessment of a property's fair market value, conducted by a licensed appraiser. The lender requires it to confirm the home is worth at least as much as the purchase price (and the loan amount).
The appraiser evaluates:
- The home's size, condition, and features
- Recent comparable sales ("comps") in the area
- Location and neighborhood
If the appraisal comes in low (below the purchase price), a few things can happen:
- Buyer and seller renegotiate the price
- Buyer pays the difference in cash
- Buyer walks away (if there's an appraisal contingency)
An appraisal protects both you and the lender from overpaying for a property.
Real-World Example
"You offer $420,000 for a home. The appraisal comes in at $400,000. You can renegotiate the price to $400,000, pay the $20,000 gap yourself, or walk away using your contingency."
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Definitions are for educational purposes only and do not constitute financial or legal advice.