Satisfying the financing condition is one of the most important steps to get a property unconditionally sold. Lending institutions will loan up to 95% of either the appraised value or the value stated in the purchase contract which ever is the lesser amount. Loans greater than 75% require mortgage insurance which is paid for by the borrower and protects the lender against losses from default. Mortgage insurance may be paid in full when the mortgage is taken out or added to the mortgage. Key to getting a mortgage approved is the appraised value of the property.
A licensed real estate appraiser performs this service. The lender, in most circumstances, will want to use their own appraiser. The appraiser contacts the listing real estate agent who coordinates the appraisal. The appraiser will assess the property using a complex set of criteria to arrive at the appraised value of the property. The appraised value is just the opinion of the appraiser of what the property is worth at some point in time, but the result of the appraisal is key when it comes to getting a mortgage.
If the property appraises for less than the accepted purchase price, then the buyer will have to make a decision. The lender will probably still loan the buyer the money, but only part of it. The buyer's choices are to make a larger down payment, re-negotiate the price, or allow the purchase contract to collapse and keep looking at other properties. The buyer's real estate agent will discuss these options with them and help them make a decision. The seller could be asked to reduce the price to the appraised value. Alternatively the purchase agreement collapses because the property did not appraise to the accepted purchase price, the buyer's good faith deposit will be returned and the property will be back on the market.
The appraisal is the most important condition met in the purchase agreement. It can make or break the deal, depending upon the results. However, once the property appraises, you are well on the way to closing the deal.