One of the most critical parts of getting a mortgage is the Appraisal. The purpose of an appraisal is to confirm the home value for the lender.

An appraisal is a professional estimate of the value of the property that you are planning to purchase.

According To Wikipedia:

Real estate appraisal, property valuation or land valuation is the practice of developing an opinion of the value of real property, usually its Market Value.

The need for appraisals arises from the heterogeneous nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location – which is one of the most important determinants of their value.

So there cannot exist a centralized Walrasian auction setting for the trading of property assets, as there exists for trade in corporate stock. The absence of a market-based pricing mechanism determines the need for an expert appraisal/valuation of real estate/property.

If the appraiser’s opinion is based on Market Value, then it must also be based on the Highest and Best Use of the real property.