Fun fact: The appraisal report in a home purchase can make or break a sale.
All lenders will require that a licensed appraiser determine the property value. The appraiser—-who works independently and is not on staff at the bank—-studies recent comparable sales in the neighborhood and makes adjustments for stuff like number of bedrooms, bathrooms, parking and kitchen/bath finishes.
You’ll ultimately get a report that states the appraiser’s value opinion, which will ideally be what you’re paying. (The appraisal can sometimes end up being more than you’re paying, which is great for you but doesn’t affect the loan.)
If the appraised value is less than the contract price, it’ll be up to you to bring in more money—-or negotiate a price reduction with the seller.
Pro Tip: Always ask your lender how long your appraisal contingency should be. Appraisal report and lender review turnarounds can vastly differ, and you don’t want to tie your contractual commitment to a guess.