Legal or Illegal?

Appraisals don't generally happen until the house is under contract, at which time, the realtor/seller already determined what they believe was the market value. The methods that appraisers use to determine the value is similar to the method that realtors use to determine the market value, so the amounts are usually pretty close to the same. The main difference between the two is that the bank will only look at the appraised value. If the actual appraisal comes back a lot higher than what the purchase price is, then the buyer has the choice on how much he/she/they would like to finance because the bank will be willing to finance a certain percentage of that.

Also, and I may be wrong on this one but, I believe appraisals can factor in improvements that can & need to be done to certain properties such as 'fix-r-uppers'.

The part I'm not understanding about the initial question is "Why would the seller NEED to cut the buyer a check for the difference when the bank will give the money directly to the buyer?"