What does an appraisal value represent in a home sale?

An appraisal value in a home sale primarily represents the lender's estimate of the property's worth. This value is determined by a qualified appraiser who evaluates various factors, including the condition of the property, comparable home sales in the area, and current market trends. Lenders rely on this valuation to ensure that the amount they are willing to lend is aligned with the actual market value of the property, protecting their financial interests. If the appraised value is lower than the agreed sale price, the lender may not provide financing for the full amount, which can impact the transaction.

The appraisal is a critical component of the home buying process, particularly for the lender, as it helps mitigate risk. While the final sale price agreed upon or the value perceived by the buyer are important elements in a transaction, they do not necessarily reflect the objective market value that the appraisal aims to determine.