Appraisal

Your lender verifies the home is worth the amount you are paying for it.

After the inspection, your lender will order a property appraisal. An appraiser is an independent professional who determines the fair market value of the home based on its condition and comparable recent sales in the area. The lender requires this to ensure they aren't lending you more money than the home is actually worth.

If the home appraises for the purchase price or higher, you're in great shape and the process moves forward. However, if the appraisal comes in lower than the purchase price, you have a 'low appraisal' situation. The lender will only fund a loan based on the appraised value, leaving a gap between what the lender will pay and what you promised to pay the seller.

If the appraisal is low, you have a few options: you can make up the difference in cash, your agent can try to negotiate with the seller to lower the purchase price to the appraised value, or you can cancel the contract (if you have an appraisal contingency in place).