An appraisal is a formal, independent opinion of an asset's value performed by a qualified appraiser — for real estate, prepared to the USPAP standard. Lenders order an appraisal to establish the collateral value that loan-to-value and advance-rate calculations are built on; the appraisal is the process, while market value, fair market value, and liquidation value are the value figures it can produce.
Real estate appraisals in the United States follow USPAP — the Uniform Standards of Professional Appraisal Practice, developed by the Appraisal Standards Board of The Appraisal Foundation. Federal law requires USPAP compliance for appraisals used in federally related real estate transactions, and the appraiser has no financial stake in whether the loan closes — that independence is the point of the standard. The appraiser inspects the property or asset and delivers a written report supporting a specific value conclusion. What value the appraiser is asked to conclude depends on why the lender ordered the appraisal. A conventional real estate or business loan closing typically calls for fair market value or market value — what the asset would fetch in an arm's-length sale between a willing buyer and willing seller. Asset-based lenders financing equipment or inventory often ask for a lower standard instead, such as an orderly or forced liquidation value, because that number reflects what the lender could actually recover in an expedited sale if it ever had to seize and sell the collateral. Whichever value the appraisal returns becomes the denominator lenders use to calculate loan-to-value, and for equipment or inventory financing, the basis for the advance rate the lender is willing to lend against. A full USPAP appraisal isn't the only option. A Broker Price Opinion (BPO) is a lighter-weight, less expensive value estimate prepared by a licensed real estate broker rather than a certified appraiser — lenders use it for loss mitigation, portfolio monitoring, and certain non-agency decisions where a full appraisal isn't required. Hard money lenders, who underwrite primarily on the property's loan-to-value rather than the borrower's credit, may rely on either a full appraisal or a BPO depending on loan size and lender policy.
An appraisal is a USPAP-compliant value opinion prepared by a licensed, certified appraiser. A BPO is a less formal, less expensive estimate prepared by a real estate broker, used by lenders for loss mitigation and portfolio monitoring rather than always for a new loan's collateral valuation.
Asset-based lenders want the worst-case recovery number — what the equipment would bring in a forced, expedited sale — not the going-concern fair market value, since that's what the lender would actually realize if it ever had to seize and sell the collateral.
Not always — a lender may accept a Broker Price Opinion or an internal evaluation for smaller or lower-risk transactions. But federal law requires a USPAP-compliant appraisal for federally related real estate transactions, which covers most bank and SBA real-estate-secured loan closings.
Yes — the appraised value is the base figure lenders apply loan-to-value or an advance rate against. A lower appraisal directly caps the maximum loan amount at the same LTV or advance-rate ceiling; it doesn't just describe the asset, it sets the borrowing limit.