How Often Do Home Appraisals Come in Low? Here Are the Odds

How market conditions impact the odds of a low appraisal

According to CoreLogic’s latest July 2024 report, 8.6% of homes sold in June 2024 had appraisal values lower than the contract prices, down from 10.7% a year prior. The overall decline in the appraisal gap aligns with a cooling housing market driven by higher mortgage interest rates and inflation. Additionally, appraisal gaps remain more common among small starter homes than among larger, more expensive ones, reflecting different market dynamics across property types. Let’s explore a few factors that may lead to a low appraisal under these market conditions.

Bidding wars can push sale prices higher

In a seller’s market, buyers compete for a limited supply of houses, often engaging in bidding wars that drive sale prices up higher than other recent sales. This can push sale prices well above recent comparables, especially in high-demand areas. Because appraisers typically base home valuations on comparable sales data, they may find it difficult to support prices inflated by bidding wars, resulting in potential appraisal gaps.

Sales data lags in rapidly appreciating markets

In fast-moving markets, lagging sales data can make it difficult for appraisers to capture current market demand. According to a NAR survey, it took a median of 30 days to close on a home in August 2024. By the time the home closes and the appraiser can use the sale as a comparable sale to support a valuation, it’s been 30 days since the buyer and seller negotiated the price. In the meantime, more recent comparable homes may be sold for more.

In the slower 2024 housing market, low appraisals have become less common, thanks to a moderation in home price growth and reduced competition among buyers. Rising interest rates and economic uncertainty have tempered demand, helping appraisals align more closely with contract prices. When the market is appreciating quickly, appraisal gaps become more common.

What other factors can lead to a low appraisal?

Beyond market conditions, there are other reasons why an appraisal can come in lower than expected. Our industry experts outline some reasons why you might encounter a low value, below.

There’s a data discrepancy between the report and the property

“If there were egregious errors that the appraiser had made,” you may have grounds to contest the report, Jacobs says, stressing the importance of verifying that the appraiser gives proper credit to the characteristics of the home, such as the correct square footage, the number of bedrooms, and any updates.

Seller tip: Review the appraisal report with your agent to suss out any material inconsistencies.

Home upgrades didn’t add as much value as anticipated

Top Virginia Beach, Virginia, agent Bethany White shares that in her 16 years of experience, appraisals often come in low when the upgrades the owner made didn’t add as much value as they had anticipated.

For instance, if you spent $100,000 putting in an upscale inground pool, that upgrade could help nudge the buyer toward making a higher offer. However, if the appraiser decides that the pool is only worth a $20,000 boost in the home’s value, it could result in a misalignment between the offer price and appraised value.

Overpricing is often the leading reason for an appraisal coming in lower than the contract price. The old adage, “Don’t over-improve for the neighborhood,” holds some truth. Despite significant investments in home upgrades, appraisers are bound by the value of comparable homes in the area. This means that regardless of the cost put into improvements, the appraisal will only reflect what the surrounding properties and comparable sales justify.

Seller tip: Manage your pricing expectations by asking a local, experienced agent for their opinion of your home’s value early in the selling process.

The appraiser was rushed

Rachel Massey, Senior Real Estate Review Appraiser at JPMorgan Chase & Co., explains that a home’s appraised value may sometimes fall below the sale price due to inadequate research. When appraisers are under time pressure, they may not identify the best comparable properties to use, which can lead to an inaccurate appraisal. Ensuring that the right comps are chosen is essential for an accurate market valuation.

Seller tip: Ask the lender for an appraisal review or reconsideration if you think the appraiser didn’t account for all of the features and characteristics that could support a higher valuation.

The appraiser doesn’t have local experience

If an appraisal comes in erroneously low, it could be due to an appraiser using poor comparable sales data or just not being competent in the market, notes Mason Spurgeon, certified general appraiser and owner of Spurgeon Appraisals.

“Some banks will engage appraisers who are from out of the area and don’t have access to the local sales data,” he says. “In that case, the appraiser is forced to use data that is fed to them from other sources, and that may or may not be correct.”

Seller tip: During your appraisal appointment, have your agent provide the appraiser with a list of recently sold homes in your neighborhood that are similar to yours and support your contract price.

You overpriced your home

According to Spurgeon, it’s common for appraisals to come in low when both seller and buyer choose to work without a real estate agent. In these cases, the seller may have overpriced their home above market value, while the buyer doesn’t recognize the discrepancy. “If the buyer or seller employs a Realtor® or an appraiser in their transaction, the sale price and market value are typically in line,” Spurgeon says.

Seller tip: Consider reaching out to a top real estate agent to guide you through the home-selling process or, at the very least, request a broker price opinion (BPO) to help assess your home’s value.

Steps to challenge a low appraisal when appropriate

As the homeowner, you can’t directly challenge the appraisal report. Only the appraiser’s client, which is usually the lender, can ask the appraiser to make data corrections or consider additional information.

Follow these steps to overcome a low appraisal:

1. Review the appraisal for any inaccuracies and missing information.
2. Ensure that the appraiser has considered the best comparable sales to justify your home’s value.
3. Dispute the appraisal by submitting a written request to the buyer’s lender. You’ll need to provide objective data with your reconsideration request.
4. You also have the option to request that the lender order an appraisal review or a second appraisal. The lender isn’t obligated to comply, so the reasoning behind your request would need to be compelling.

Your options if you can’t challenge the appraisal

Say your appraisal challenge doesn’t pan out — does that mean the deal is dead? Not necessarily.

When an appraisal comes in low, many real estate professionals find a way to navigate the situation and successfully close the deal about 75% of the time. Here are a few strategies to move forward with the transaction:

The buyer can make up the difference

If the buyer can’t live without your home, they can pay the difference between the appraised value and sale price out of pocket. Spurgeon has seen this happen in scenarios where the buyer really wants the property, or the market is on a quick upward trend and is moving faster than the sales.

The seller can reduce the price

If you’re highly motivated to close the deal, you can opt to lower the contract price to meet the appraised value.

The buyer and seller can work together to close the gap

If both you and the buyer are motivated to make the deal happen, you may choose to split the difference between the sale price and the appraisal amount.

The parties can choose to walk away from the deal

If the buyer included an appraisal contingency in their offer, they can exit the deal with their earnest money intact if the appraisal comes in under the contract price.

“Ultimately, I would recommend not giving up until you get a hard ‘no,’ but remember that an appraiser is not likely to change their value without new data or comparable sales,” Spurgeon says.

When to negotiate an appraisal gap guarantee

According to Jacobs, sellers in her area anticipate the possibility of a low appraisal value when considering offers. In a strong market, sellers look for an appraisal gap guarantee when evaluating offers. This addendum stipulates that the buyer pays the difference — up to a specified limit — between the appraised value and contract price if the value comes in low. With strong buyer demand and low home inventory, Jacobs routinely sees such clauses with offers.

Key takeaways

• In the slower 2024 real estate market, appraisal gaps are becoming less common, as home price growth has slowed.
• In markets where appraised values aren’t keeping up with contract prices, some sellers are still looking for appraisal gap guarantee clauses when reviewing offers.
• If a low appraisal occurs, buyers can challenge it with a written request but must back up their case with data, such as comparable sales or additional documentation.
• If the appraisal is lower than the contract price, one option is for the buyer to cover the difference, or for the seller to adjust the price to match the appraisal.

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