… and why it’s not just about you
Ever wonder why, just when your client thinks they’re home free on their mortgage approval, the lender throws in the curveball: “We’ll need an appraisal.”
If you’re a realtor or a homebuyer, you’ve probably muttered under your breath, “Seriously? Why?!” Well, let’s break it down.
In this article, I’m going to unpack the real reasons mortgage lenders require appraisals—because it’s about a lot more than checking off a box or making your client jump through hoops. It’s about risk, protection, and market reality.
Understanding this helps you better set expectations, avoid surprises, and explain it all in plain English to your clients.
Here’s What I’ll Cover:
To Confirm the Property is Marketable
To Validate the Purchase Price
To Manage Risk Based on Loan Type
To Protect the Lender’s Money
Let’s call it what it is: lenders are in the business of making money, not giving it away. They want to know that if things go sideways—if a borrower defaults—they can sell the property and recover their loan.
An appraisal gives them that confidence. It’s their safeguard. If your client is asking to borrow $700,000 but the house is only worth $650,000, well, Houston, we have a problem.
Example:
I had a client recently looking at a semi-detached home in Toronto. Offer was accepted at $1.2 million, but the appraisal came back at $1.1 million. The lender wasn’t budging. The buyer had to come up with the shortfall in cash, or renegotiate. That appraisal wasn’t about hurting feelings—it was about protecting the lender’s investment.
To Confirm the Property is Marketable
Lenders don’t want weird properties. Plain and simple.
If the home is too unique, too rural, too custom, or too rundown, it becomes harder to sell in a worst-case scenario. Appraisals help lenders spot these red flags early.
They want to know the house is marketable, desirable, and saleable—within a reasonable timeframe.
Example:
A realtor I work with had a listing for a converted church out in the countryside. Gorgeous? Absolutely. Marketable? Questionable. The lender demanded a full appraisal, and the report made it clear: niche buyers only, limited comps, longer days on market. That shaped the lender’s comfort level with the deal—and ultimately impacted the loan amount offered.
To Validate the Purchase Price
We’re in a world where bidding wars are normal and people pay over list without blinking. But lenders don’t care what someone offered—they care what it’s worth.
The appraisal acts as a sanity check. Did your client wildly overpay because they got emotionally attached to the kitchen island? The lender wants cold, hard market evidence to back up the purchase price.
Example:
A client of mine fell in love with a townhouse and offered $100K over asking. The appraisal only supported $50K over. That gap had to be covered out of pocket. The lender wasn’t going to lend on emotion—they needed market justification.
To Manage Risk Based on Loan Type
Different mortgages carry different risks. A refinance, purchase, switch, or equity take-out might all require varying levels of scrutiny. The higher the loan-to-value ratio (LTV), or the shakier the borrower profile, the more likely the lender will want a clear, defensible appraisal.
It’s about risk management, pure and simple. The more money at stake, the more cautious lenders become.
Example:
A self-employed client wanted 80% LTV on a refinance to fund a new business. Because self-employed income is trickier, the lender demanded a full appraisal—just to be sure the property could support the loan request if things didn’t pan out as planned.
How Realtors and Clients Can Use This Knowledge
For Realtors:
Pre-frame the conversation. If you’re writing offers way over list, let your buyers know: the lender may ask for proof the home is worth it. This avoids surprises and panicked phone calls when an appraisal comes in light.
For Homeowners:
Understand that an appraisal isn’t about distrust—it’s about protecting everyone’s interests. If your mortgage agent tells you an appraisal is coming, it’s not a bad omen; it’s just a step in confirming your home’s value.
Storytime: The Case of the Overly Optimistic Offer
Last spring, I had a client buying in Durham Region. The market was hot, and they paid $75K over asking. They didn’t think twice until I told them the lender would likely require an appraisal. The appraisal landed almost bang on the original asking price, not the sale price.
Suddenly, they had to pony up the shortfall or adjust their financing strategy. Thankfully, we had that conversation early—before they removed financing conditions. No panic, no last-minute scrambling.
Allen’s Final Thoughts
At the end of the day, lenders aren’t being difficult for the sake of it. They’re making decisions based on risk, resale potential, and market data—not emotions, not hope, and certainly not bidding wars.
An appraisal is their way of confirming they’re lending responsibly—and that you’re borrowing within reality, not just within your dreams.
How I Can Help
As your mortgage agent, I don’t just find you the best rate—I help you navigate these kinds of situations smoothly. I’ll tell you upfront when an appraisal is likely, what it means for your financing, and how to plan for any curveballs. I’ll work behind the scenes to advocate for AVMs where possible to save you money, and when a full appraisal is unavoidable, I’ll connect you with trusted professionals who get the job done right and on time.
Whether you’re a buyer, homeowner, or realtor, I’m here to help you see the road ahead clearly—no surprises, no confusion, just solid guidance every step of the way.
