Do Homes Usually Appraise for the Selling Price?

Summary:
Most homes do appraise at or above the selling price, but there are exceptions, and the appraisal and sale price are not always identical.

How Often Do Appraisals Match the Selling Price?

  • According to recent data, the majority of homes appraise at or above the contract (selling) price. For example, in the first half of 2024, only 8.4% of sold properties had a contract price above the appraised value, meaning over 90% of homes appraised at or above the selling price. Fannie Mae also reports that “the vast majority of appraisals confirm contract price,” with low appraisals occurring less than 10% of the time.

Why Might Appraisal and Selling Price Differ?

  • Appraised Value: Determined by a licensed appraiser based on recent comparable sales, property condition, location, and features.
  • Selling Price: The amount a buyer is willing to pay, influenced by market demand, negotiations, and sometimes emotional factors.

Appraisals are meant to reflect fair market value, but in hot markets, buyers may pay above appraised value to secure a home, especially when inventory is low and bidding wars are common. Conversely, in slower markets, homes may appraise for more than the sale price.

What Happens If the Appraisal Is Lower Than the Selling Price?

  • If a buyer is using a mortgage, the lender will base the loan amount on the appraised value, not the higher contract price.
  • If the appraisal comes in low, buyers and sellers may:
    • Renegotiate the price
    • Have the buyer pay the difference out of pocket
    • Challenge the appraisal or order a new one
    • Cancel the deal if they can’t reach an agreement

Key Points to Remember

  • Appraisals and selling prices are usually close, but not always identical.
  • In most cases, homes appraise at or above the selling price.
  • The risk of a low appraisal is higher in rapidly appreciating or highly competitive markets.
  • Cash buyers are not bound by appraisal requirements, so the sale price can exceed appraised value without issue.

In summary:
Homes usually appraise for the selling price or higher, with low appraisals being relatively rare-occurring less than 10% of the time in recent years.However, the appraisal and selling price are not guaranteed to match, especially in fast-moving or competitive markets.