An appraisal is simply an opinion of value. Some appraisals are a professional appraiser's opinion, others are guesses. Still others are based upon the sometimes harsh reality of the marketplace. The most important factors for appraisers are figures of recent real estate sales involving comparable properties. Basically, there are only two opinions that matter.

(1) The list price is a "wishful-thinking" value, merely a hopeful estimate. It is set by the seller. The sale price is the real value. It is determined by you, the buyer. Of course, the price you finally agree to pay is partially determined by the seller through the negotiation process. But you and only you decide how much you are willing to pay.

The lender's is the second opinion that truly matters. The bank usually employs appraisers, although sometimes it uses third party "fee" appraisers. A value of the property is determined, and the lender will then make a mortgage loan based on this figure.

If the lender's appraisal "comes in" lower than your agreed-upon sale price, you may not be able to buy the home. The lender bases its lending decision upon this professional opinion of value. It will only loan a percentage of this figure. Therefore, if you are counting on using the lender's funds in a certain amount to finance the purchase of your home, a low appraisal from the bank can seriously damage your first time home buying efforts.

The lender's opinion of value can be disputed. The appraisal department at a bank will usually welcome previously overlooked comparable sales data ("comps") and other factors which might affect their appraisal. Sometimes there were sales in the area of which the appraiser was unaware. You and/or your real estate agent often know about non-MLS sales of which the bank appraiser has no knowledge.

Perhaps you decided to buy this house because the seller spent thousands on structural and mechanical system upgrades. The lender is not to aware of these value-enhancing improvements. When you bring them to the appraiser's attention, you quite possibly will induce the appraisal department to raise the appraisal figure. The critical point to remember about this is: If the lender produces a low appraisal, you can always contest it.

You might hear complaints when the lender's appraisers express a low opinion of value - "Why don't they just appraise at sales price? After all, THESE buyers are willing to pay that much. Surely others would, too." Ah, but that's NOT necessarily true. Some buyers (hopefully not you) do agree to pay too much. The lender needs to protect itself from these "lovestruck" buyers who must have that home. If the bank eventually has to become the owner, by having to foreclose, it must have reasonable expectations of being able to recover all or most of its investment.

When negotiating the purchase of your home, be sure you are always being prepared to "walk away" from the transaction if the seller is too unreasonable. There are plenty of other homes available. If you do this, the lender's real estate appraisal will almost certainly come in at or above your sales price and thus cause you no problem.

Keep the Golden Rule in mind: "The banks have the gold, so they make the rules."