Why Did the Appraiser Come in Lower Than the Buyer Offered?
A buyer and seller agreed on the price. So why can an appraiser see the same home differently?
The seller listed the home for $350,000. Several buyers were interested, one offered $370,000, and the seller accepted.
Everyone seems to agree the house is worth $370,000.
Then the appraisal comes back at $355,000.
For buyers, the reaction is often confusion: I was willing to pay $370,000, so isn’t that what the house is worth? For sellers, it can be even more frustrating. If someone is ready to hand you $370,000 for your home, how can someone else say it’s worth less?
The answer comes down to something that’s easy to forget during a competitive real estate transaction: an offer and an appraisal are answering two different questions.
The buyer is deciding what the home is worth to them. The appraiser is developing an independent opinion of the property’s market value for the lender, using the home itself, comparable sales, location, condition, market conditions and other relevant information.
Usually those numbers work together just fine.
Sometimes they don’t.
The Buyer Is Looking Forward. The Appraiser Is Looking for Evidence.
Imagine a home comes on the market in a Western New York neighborhood where buyers have been waiting for something similar.
It’s beautifully updated. The backyard is exactly what one buyer wanted. It’s on the street they’ve been hoping to live on. Maybe they lost two other houses this summer and don’t intend to lose a third.
They may be perfectly comfortable offering more than the asking price.
That’s real market activity. A willing buyer just put an actual number on what the house is worth to them.
But the appraiser can’t simply say, “Well, someone offered $370,000, so it’s worth $370,000.”
Comparable properties are an important part of the appraisal process. An appraiser analyzes relevant sales and makes adjustments for meaningful differences between those properties and the home being appraised. Size, condition, location, lot, upgrades, amenities and current market conditions can all enter into the analysis.
That’s where a fast-moving market can occasionally create an interesting problem.
Buyers may be reacting to what is happening right now, while many of the comparable sales available to an appraiser represent transactions negotiated weeks or months earlier.
The market can sometimes move faster than the closed sales used to help document it.
Not Every Dollar Spent on a House Becomes a Dollar of Value
Sellers can also be surprised by how improvements are viewed.
You may have spent $40,000 on a kitchen, $20,000 on landscaping and another $15,000 creating the backyard you’ve always wanted. Those improvements can absolutely make a home more attractive and may contribute to its value.
But an appraisal isn’t a reimbursement calculation.
Spending $40,000 doesn’t automatically increase the appraised value by $40,000.
The same applies to features buyers love. A pool may be incredibly valuable to the family that has dreamed of owning one, while another buyer sees maintenance. A finished basement may make one house far more appealing than another, but it isn’t necessarily valued the same way as above-grade living space.
Real estate value isn’t simply the sum of everything a homeowner has spent.
The market—and the available evidence from comparable properties—still matters.
Sometimes a House Is Just Hard to Compare
Western New York has plenty of neighborhoods where one house doesn’t look much like the next.
An older home may have been expanded several times. A property might sit on an unusually large lot. One house may have a detached garage, another an attached garage and another no garage at all. A beautifully renovated century-old home may sit among properties that haven’t been updated in decades.
Finding truly comparable recent sales can become difficult.
Fannie Mae’s own research into below-contract appraisals has identified limited comparable sales and unusual property characteristics among factors that can contribute to valuation challenges.
That’s different from saying the appraisal is wrong.
It means some homes are simply easier to value than others.
What Happens When the Appraisal Is Low?
This is the part buyers and sellers usually care about most.
Suppose our buyer offered $370,000 and the appraisal came in at $355,000.
That doesn’t automatically mean the seller must reduce the price to $355,000. It also doesn’t automatically mean the buyer has to walk away.
But it can affect financing.
If the appraised value is below the purchase price, the lender may not lend the full amount originally expected. Depending on the contract and the buyer’s financing, possible outcomes can include renegotiating the purchase price, the buyer bringing additional money to the transaction, challenging an appraisal believed to contain errors or unsupported conclusions, or potentially ending the transaction if the contract permits it.
And sometimes buyer and seller meet somewhere in the middle.
This is where the terms negotiated at the beginning of the transaction suddenly become extremely important. An appraisal contingency—or provisions dealing with an appraisal shortfall—can affect what options are available when the numbers don’t match.
That is one reason a seller shouldn’t evaluate an offer based solely on the number at the top.
The structure of the offer matters too.
Can an Appraisal Be Challenged?
Yes, but “we don’t like the number” isn’t much of an argument.
Buyers are generally entitled to receive the appraisal obtained by their lender. If there appear to be factual errors, important information was overlooked, inappropriate comparable properties were used or the opinion of value otherwise appears unsupported, a borrower can ask the lender about a reconsideration of value, commonly called an ROV. Fannie Mae requires lenders to maintain a borrower-initiated ROV process for applicable loans.
Maybe the report has the wrong square footage. Perhaps an important feature was missed. There may be a more relevant comparable sale that wasn’t considered.
Those are meaningful things to examine.
Simply pointing to the purchase contract and saying, “But someone offered more,” isn’t the same thing.
The whole reason for the appraisal is to provide an independent opinion rather than automatically confirming the price the buyer and seller already negotiated.
So Who Is Right?
This may be the most interesting part of the entire conversation.
Potentially, both of them.
A buyer can rationally decide that a particular house is worth $370,000 to them, while an appraiser concludes that the available market evidence supports $355,000.
An appraisal is an opinion of value, not a declaration that no buyer should ever pay more. At the same time, an accepted offer doesn’t guarantee that an independent appraisal will support that exact number.
Most transactions never turn this distinction into a major issue. But when it happens, understanding the difference can take some of the emotion out of what otherwise feels like somebody suddenly saying the house isn’t worth what everyone thought it was.
The buyer made an offer.
The seller accepted it.
The appraiser did a different job.
And when those three numbers don’t line up, experienced agents, lenders and attorneys can help buyers and sellers understand what the contract allows and determine the path forward.
Buying or selling a home in Western New York? Call Great Lakes Real Estate at (716) 754-2550 and let our experienced local agents help you navigate every step from pricing and offers through appraisal and closing.
