Question: I am considering buying a single-family house, and the real estate broker has presented me with a form contract to sign. I am concerned that I may be acting emotionally and not rationally. How do I determine the value of the house? I have a nagging feeling that I may be paying too much for this property, but do not know how to solve this problem.

Answer: Let's face it. Determining the value of a piece of real estate is perhaps the hardest issue facing all prospective homeowners, whether they are first-time purchasers or experienced professionals.

Mortgage lenders face this problem also. No lender wants to make a loan which will not be repaid, or -- in the event the lender has to foreclose on the property -- will not command the full value of the then existing mortgage.

For example, if a lender makes a mortgage loan of $300,000, it wants to be absolutely certain that the house which is the security for this loan is worth at least that amount. In fact, most lenders want their borrowers to put up some money -- called equity -- when a loan is made. Typically, a borrow must put up at least five percent of the purchase price, and the lender will advance the rest. There are, of course, many different kinds of loans, including some where the lender will actually put up 100 percent of the price.

Regardless of the type of loan, however, the lender will always require that the home be appraised by a professional appraiser. This is a person who is trained to evaluate what a property is worth. In some states, appraisers are licensed; I am not sure that they are licensed in all 50 states.

An appraiser looks at many variables, including the condition and location of the property. The appraiser also relies heavily on what are called "comparables" -- what similar properties sold for in the recent past. Clearly, if a similar (or even identical) property down the street just sold for $225,000, the house you are considering may not be worth $325,000.

However, when the appraiser physically inspects your potential home, he/she may find that your house is not really "similar" -- comparable -- to the other houses on the block. Your house may have many extras -- a new kitchen, a swimming pool, several fireplaces, etc.

Thus, the appraiser submits a written report to your lender. If the appraised value meets the lender's criteria, and assuming that your credit standing is good, and you are able to meet the monthly payments without a major strain on your financial situation, the lender will give you a loan commitment.

But appraisals are not based on any scientific formula; they clearly are subjective. It is often said that the best test to determine the value of a house is what a willing buyer is prepared to pay and a willing seller is prepared to accept.

And while appraisals are, in my opinion, more art than science, unfortunately that is perhaps the only way to determine if you are paying too much for your house. But here are some suggestions which you should consider before you sign that real estate contract:

Make absolutely sure that your contract is contingent on your obtaining the necessary financing. In recent years, too many real estate contracts were signed in haste -- and without this contingency.

Why is this important? Let's look at this example. You sign a contract to purchase a house for $300,000. You expect to get a conventional loan of $240,000 (80 percent) and will put up the difference ($60,000) with your own money. However, the appraisal which your lender receives indicates that the house is only worth $285,000. Your lender will still lend you 80 percent of the value, but now the loan amount will only be $228,000.

But since you are legally obligated to pay the full $300,000 for the property, you will now have to come up with $72,000 -- or $12,000 more than you originally planned to pay. While you may have this money, you certainly did not anticipate this additional expense. And, more significantly, you may not have this extra money, and may be in breach of your contract and lose your earnest money deposit if you cannot go to settlement.

Thus, it is critical in all real estate contracts, to have a financing contingency. If the seller (or the real estate agent) tells you that they will not accept such a contingency, my suggestion: go somewhere else.

Include a provision in your contact that if the house appraises for less than the contract price, you will have three alternatives: (a) cancel the contract and get your earnest money deposit immediately refunded to you; (b) you will pay the full price regardless of its appraised value, or (c) the seller will reduce the price to the amount of the appraisal.

Once again, this is a critical provision to be included in any real estate sales contract. In the past two years, values in many parts of the country have skyrocketed -- but your house may not be as valuable as you think it is. Why take a chance that the appraisal will be low? Keep in mind that legitimate lender's encourage their appraisers to be conservative. The lender wants to be sure that it will not lose money on you.

Should you get your own appraisal before you sign a contract? That's always a good question without a good answer. First, you probably don't have time to arrange to have the house appraised before you sign a real estate contract. Most lenders, in any event, will insist on using an appraiser on their own list. If you do have time to get an appraisal, make sure that you obtain a name from your lender. Otherwise, you will have to pay for two appraisals.

If you ultimately buy this house, do not forget to demand a copy of the appraisal from your lender. You have the absolute right to get a copy, if you request it in writing.

Valuing real estate is difficult. The suggestions highlighted in this column may give you peace of mind that you did not overpay for your dream house.