Why & When Appraisals Do NOT Equal Market Value


I beat this dead horse more than any other simply because the issue surfaces so often.

This week was no exception when a buyer of ours got cold feet when his appraisal came in $25,000 under contract price.

This happens from time to time in hot markets whenever there are not enough recent closed comparable sales to support a contract price.

With respect to this week’s transaction, there were multiple offers on the property so the property would and could re-sell immediately for the contract price, but the low appraisal scared the heck out of the buyer and there was no talking him off the ledge.

As an aside, the sellers understood this. So they were unwilling to come down in price and more than willing to take the risk of putting the property back on the market.

In any case, because of what happened this week, I thought it was time to repeat the below blog.


We once had a transaction in Berkeley, CA involving a property that was listed for $850,000, and there were more than ten offers for over $1 million. The market value for that property was clearly over $1 million because there were so many buyers willing to pay over $1 million in an open market.

The appraised value, however, was much less because the highest-priced comparable sale in the area was only $850,000. The appraiser knew about the other offers and he knew the market value was probably over $1 million, but he was constrained by appraisal guidelines.

The appraiser could only use comparable sales within one mile of the subject property that closed within the last three months. He could not correlate to the other offers or similar pending sales at all.

The appraisal came in at $850,000 and this is clearly a case where the appraised value did not equal the market value.

This happens all the time in “hot markets” where there are multiple offers, and prices are increasing too fast for comparable sales data to keep up.


Further, if appraisers push value too far in an attempt to support a contract price, other issues arise. An underwriter will likely call for a full review of the appraisal that will probably result in a significant cut in the value.

Or worse – if the appraisal makes it past underwriting, investors may refuse to buy the loan on the secondary market because they are unfamiliar with Bay Area (or other unique) markets and the property appears over-valued on paper.

In any case, prior to the meltdown in 2008, appraisers could correlate to other offers and even pending sales to some extent, but nowadays they are not allowed.

Appraising is all about closed sales and tight appraisal guidelines, and not always about estimating market value.

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Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646

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