Appraisal.
In plain English
An appraisal is a professional opinion of what a home is worth, written by a licensed appraiser who has no stake in the sale. The appraiser inspects the property and compares it to similar homes that recently sold nearby. The lender orders the appraisal during underwriting because the house is the collateral for your loan, and they will not lend more than the home is worth. You usually pay for the appraisal as part of your closing costs, even though the lender, not you, is the customer.
01Why it matters
If the appraisal comes in lower than your offer, the lender will only lend against the lower number, which means you may have to bring extra cash or renegotiate the price.
02The math, step by step
You agree to buy a home for $350,000. The appraiser reviews recent nearby sales and values it at $335,000. Your lender will only base the loan on $335,000, so the $15,000 gap becomes your problem to solve, either by paying more cash, asking the seller to lower the price, or walking away if you have an appraisal contingency.
03What this is NOT
An appraisal estimates value for the lender. A home inspection checks the physical condition of the house for you. One protects the loan, the other protects you, and they are done by different people for different reasons.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice