The bank sends an appraiser out to a property to ensure it is worth the amount you are willing to pay. Consider it an additional unbiased  check on the value. If you require a $500,000 mortgage on a property that is deemed to only be worth $500,000, the bank may  not give you a loan (It would be considered 100% financing) The bank looks at lending  money that is secured on a property as an investment. There would be no equity in the house on that particular scenario, and in case of a default, the bank would have a hard time recouping its investment.

Three  things can happen in this instance. The seller can reduce his price to what the bank feels that its worth. The buyer can put more of a deposit down, or the buyer can walk away from the transaction, with no penalties. Incidentally, there would be no penalty for the seller, either.

Sometimes, if and when an instance like this occurs, the seller may opt to hire an independent appraiser (that is certified through the buyers bank) for another opinion. Appaisers sometimes make mistakes, too- but don't worry too much about this- it's a rare occurrence these days. Years ago, buyers were not represented by agents. All realtors worked for the seller, even if they wrote an offer for the buyer. With buyer representation, the contracted agent holds a fiduciary relationship with the buyer. Justr another good reason to hire an agent to represent you in yuor purchase