When you purchase a property using a mortgage, your bank will require an appraisal. The appraiser is there to protect the bank’s interest in the property by verifying the property’s value.
The bank will not lend you more than they think the home is worth, and the bank won’t take your word for it. The bank doesn’t trust the seller, the listing agent, the buyer, or the buyer’s agent. They want their own disinterested opinion. But in this case, the bank protecting itself also protects you, as the buyer, from overpaying for the property.
The appraiser looks a bit more closely at other comparable properties that have sold, the condition of the property, and current market trends. Once the appraiser determines the value, he or she issues a report.
If the appraiser’s report says the home isn’t worth what you are under contract to pay, then there is a negotiating period to lower the price or otherwise bridge the difference. If no agreement can be made, then you do not have to buy the house at a higher price than it’s worth. If the report comes back and says that the house is worth more than you agreed to pay, then nothing changes on the contract. You just get to buy a house for less than it’s worth.