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 a lender will approve for the home you wish to buy or finance.

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 “comparables” also known as “comps” (also called a Comparative Market Analysis or CMA) before you agree on the final purchase price. This allows you to 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.

Although it may seem difficult to appraiser properties given their wide range of values, an appraiser is trained to do just that.  He/she will first take note of the property by performing a site visit.  He/she will then comb the area for comparable recently sold properties that are most similar, closest to in proximity, and most recent in terms of sales.  He/she will then use standard adjustments to account for any slight differences between the subject property and the comparable sales.  He/she finally comes up with an opinion of what the fair market value of the subject property is based on the research and evidence from the market.

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.