Do I need an appraisal?

When you’re buying a home with a loan, the lender will require something called an appraisal. This is not the same as a home inspection. A home inspection is optional and checks the condition of the home—like the roof, plumbing, and other systems. The appraisal, on the other hand, is required by the bank and focuses on the value of the home to make sure it’s worth what you’re paying.

The appraiser compares the home to other recent sales in the area to come up with a value. Once the appraisal is complete, it can come in at value (meaning the home is worth what you’re paying), above value (which means you’re getting a good deal), or below value (which can cause issues).

If it comes in low, the bank won’t lend on the full purchase price. You have a few options: you can try to challenge the appraisal by sending in better comparable sales, negotiate with the seller to lower the price, pay the difference in cash, or switch to a different lender and hope the new appraisal comes in higher.

Appraisals are a normal part of the loan process and help protect both you and the lender from overpaying. If the value comes in low, don’t panic—there are still ways to move forward.