Definition:
An appraisal is a professional estimate of a property’s fair market value, completed by a licensed appraiser.

Example:
If Emily is buying a house listed for $350,000, her bank will order an appraisal to confirm the home’s actual worth. If the appraiser determines the home's value is $340,000, Emily’s lender may only approve a mortgage up to that appraised amount, potentially impacting her purchase.

Explanation:
Appraisals play a critical role in real estate transactions. Typically ordered by the lender, an appraisal protects both buyers and lenders by ensuring the agreed-upon price aligns closely with the home's real market value. Appraisers evaluate recent comparable home sales, property condition, location, and unique features. After analyzing these factors, the appraiser generates a detailed report indicating the home’s estimated value.

Buyers use appraisal reports to ensure they’re paying a fair price. Sellers may also order appraisals before listing a property to set a competitive asking price and minimize negotiation friction during the sale.

Importance:
Understanding appraisal values is essential because mortgage lenders usually won't lend more money than a property's appraised worth. A lower-than-expected appraisal can complicate financing, possibly requiring renegotiation between buyer and seller. Conversely, a higher appraisal can offer peace of mind and assurance that a home’s asking price is justified.

For homebuyers, appraisals provide clarity, preventing overpayment and helping secure favorable loan terms. Sellers benefit by accurately pricing their homes, facilitating smoother transactions, and avoiding unexpected issues during closing.

In short, appraisals help buyers and sellers confidently navigate pricing and financing decisions, promoting fairness and transparency in the real estate market.