An appraisal is a formal valuation of a property performed by a state-licensed or certified appraiser. Lenders almost always require one before approving a mortgage, because the home serves as collateral for the loan and the lender needs assurance it is worth the amount being borrowed.
The appraiser inspects the property and analyzes recent comparable sales, adjusting for differences in size, condition, location, and features to arrive at an opinion of value. The result is documented in a written report the lender relies on.
Because the loan amount is tied to the appraised value, a low appraisal can complicate or derail a sale. If the appraisal comes in below the agreed price, the buyer may need to renegotiate, pay the difference in cash, or invoke an appraisal contingency to walk away.