Finance
What is appraisal?
An appraisal is a formal opinion of a property's market value produced by a licensed appraiser, most often commissioned by a lender to confirm that a property is worth enough to secure the loan against it.
Because the lender is the client, an appraisal serves the lender's interest in not over-lending, rather than the buyer's or seller's interest in a particular number. That is why an appraisal can come in below an agreed sale price even when both parties were content with it.
A low appraisal creates an appraisal gap: the lender will finance against the appraised value, leaving the difference for the buyer to cover in cash, renegotiate, or walk away from. How that gap is handled is often written into the contract in advance.
Appraisers use similar comparable-sales logic to a CMA, but with formal standards, documentation requirements and professional liability attached.
Related terms
A comparative market analysis is an agent's estimate of a property's likely selling price, built by comparing it against similar nearby properties that have recently sold, are currently listed, or failed to sell.
Escrow is an arrangement where a neutral third party holds funds and documents on behalf of a buyer and seller, releasing them only once every agreed condition of the sale has been satisfied.
A contingency is a condition written into a purchase contract that must be met for the sale to proceed, allowing the buyer to withdraw without losing their deposit if it is not.
A property is under contract when a seller has accepted an offer and both parties are bound by a purchase agreement, but the sale has not yet completed because contingencies or closing steps remain.