Can You Sell Your House for More Than the Appraisal?

It is possible to sell a house for more than its appraised value, especially in competitive real estate markets. An appraisal provides an objective estimate of a property’s worth, playing a crucial role in home purchase financing. It helps ensure the loan amount aligns with the property’s actual value, which is important for lenders.

The Role of Appraisal in a Sale

A home appraisal is a professional assessment by a licensed appraiser to determine a property’s fair market value. Mortgage lenders typically require this process when a buyer seeks financing or a homeowner refinances. Its purpose is to provide an independent, unbiased value estimate, safeguarding the lender.

The appraiser ensures the property’s value supports the requested loan amount. If the value does not meet or exceed the loan, the lender faces increased risk. The appraisal cost, typically $300 to $600 for a single-family home, is usually paid by the buyer as part of closing costs, though the lender orders the service.

A distinction exists between appraisal value and market value. Appraisal value is a professional’s judgment based on methodologies and data, while market value is what buyers are willing to pay in an open market. These values are not always identical, especially in dynamic housing markets. Market value is influenced by economic conditions and buyer demand, while appraised value is a snapshot derived from comparable sales and property characteristics.

Discrepancy Between Market Value and Appraisal Value

Several factors can cause a home’s market value to exceed its appraised value. A strong seller’s market, with high demand and low housing inventory, is a significant driver. In such environments, buyer competition intensifies, leading to bidding wars that push prices beyond what an appraiser might determine based on recent comparable sales.

Multiple offer situations frequently contribute to this discrepancy. Even if an appraiser knows about multiple offers, their valuation must be supported by concrete data and comparable sales, not just the highest bid. A home’s sale price, driven by competitive offers, may exceed the appraiser’s supported value. Appraisers primarily rely on closed sales of similar properties, known as “comps,” typically from the last six months, to determine value.

Unique or desirable property features might not be fully captured by comparable sales data. Features like custom renovations, premium upgrades, or exceptional landscaping may hold more perceived value for a specific buyer than what standard appraisal methods quantify. Emotional buyer appeal, where a buyer pays a premium for a home that fits their preferences, can widen the gap. Recent improvements not yet reflected in public records or comparable sales data can also lead to a lower appraisal than the market price.

Buyer Financing When Sale Price Exceeds Appraisal

When a home’s agreed-upon sale price is higher than its appraised value, direct financial implications arise for the buyer, especially concerning mortgage financing. Lenders typically only provide a mortgage loan up to the appraised value, not the contract price. This policy protects the lender from over-lending on an asset that might not be worth the full loan amount if foreclosure occurs.

If the appraisal is lower than the purchase price, the buyer generally needs to cover the difference, known as the “appraisal gap,” out of pocket. This amount is in addition to their standard down payment and closing costs. For example, if a home is under contract for $400,000 but appraises for $380,000, the buyer would need to bring an additional $20,000 to closing to bridge this gap, assuming they proceed with the purchase at the original price.

The deal can fall through if the buyer cannot or will not cover this difference. Many purchase agreements include an appraisal contingency, allowing the buyer to back out and retrieve their earnest money deposit if the appraisal is low and a new agreement isn’t reached. Without this contingency, walking away could mean forfeiting earnest money. Buyers might explore options like using cash reserves, receiving monetary gifts, or increasing their down payment to address the shortfall.

Navigating a Sale When Appraisal is Lower Than Offer

When a home appraisal is lower than the accepted offer, sellers have several strategies to keep the transaction on track. One common approach involves negotiating with the buyer to find a middle ground. The seller might reduce the sales price to match the appraised value, or the parties could split the difference, with the seller lowering the price by a portion of the gap and the buyer covering the remainder in cash.

Another option is for the buyer to cover the entire appraisal gap themselves, if they have sufficient funds and are motivated to purchase the home. This scenario often occurs in competitive markets where buyers are prepared to pay above the appraised value to secure a desirable property. However, this relies on the buyer’s financial capacity and willingness to proceed without a price adjustment from the seller.

Challenging the appraisal is also possible, though difficult and without guaranteed outcome. The seller, with their real estate agent, can submit a “reconsideration of value” to the lender, providing additional comparable sales data or pointing out factual errors or omissions in the original appraisal report. The lender will review this information, but there’s no guarantee the appraiser will revise their opinion, and a second appraisal may be required, entailing additional costs.

If negotiations fail and challenging the appraisal is unsuccessful, the seller might consider reducing the price to the appraised value, or relisting the property. The decision depends on the seller’s urgency to sell and current market conditions. Clear communication between all parties, including agents and lenders, is crucial to explore viable solutions and understand the buyer’s financial position and commitment.