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Purchasing my first home and had to go over asking price due to competing offers. What's the likelihood that the appraisal will come in under the purchase price, thus complicating my mortgage application? Does the appraiser see the purchase agreement ahead of time and take it into account?

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  • Forgive my title edit, "how often" results in a meaningless request for data. The concern is for one appraisal, yours. 10%, 90%, who cares? Commented Dec 8, 2019 at 13:45
  • Understood @JTP-ApologisetoMonica -- every bank/loan is different. I've read some appraisal horror stories in my research and was just curious how common they were, especially for someone with good credit getting a traditional 30-year mortgage.
    – skippy619
    Commented Dec 8, 2019 at 17:39
  • especially for someone with good credit getting a traditional 30-year mortgage It's important to differentiate factors here. The appraisal doesn't have anything to do with your mortgage term or your credit history. The bank will have a hard limit on LTV for your mortgage product, and whether or not your appraisal is above or below that number is the important thing. It doesn't matter if your credit history is marginal or stellar, if the LTV is out of bounds, no loan will be made.
    – dwizum
    Commented Dec 9, 2019 at 13:59
  • Interesting. I assumed that if my risk for foreclosure was very low, then the bank would be happy to take on the loan because of the extra interest it will earn. But I guess smaller down payment with PMI is the more logical route in the scenario I've described.
    – skippy619
    Commented Dec 9, 2019 at 15:17

2 Answers 2

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The appraisal determines how much the bank is willing to loan you (and what interest rate it will charge you. If you are buying a house for $250K with 20% down payment and wanting a mortgage of $200K, but the appraisal is $220K only, the bank won’t want to loan you more than $176K (or maybe $198K and charge you more interest since it would be a 10% down loan in the bank’s eyes) and you will either need to come up with the difference as additional down payment or go back to the seller and cancel the deal. Typically house sales contracts have contingency clauses allowing cancellation for various causes, and not being able to get a mortgage loan approval is one of the causes.

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  • Makes sense, and I know I have the option to appeal the decision and request a second independent appraiser. I'm just wondering whether my bank will negotiate the terms of the loan or if they will trust the appraiser's decision full-stop. I feel like the competitiveness of the market in my area explains the higher purchase price.
    – skippy619
    Commented Dec 8, 2019 at 3:53
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The sellers agent should have helped them prepare a plan for selling the house. That would have included an estimate of what an appraiser would value the house at. With that estimate they would have decide where to set the price they were advertising the house for. Sometimes they advertise a little low, with the hope they will get multiple offers.

Potential buyers should have had an agent prepare a similar estimate to determine what they will offer for the house, and how much they can offer and still get the loan they need.

Of course those are just two estimates, they have no idea if the appraiser will come up with a similar estimate.

Even if the market is hot in that neighborhood, the bank the buyer is using may hire conservative appraisers which would make them try to keep the value close to what the comps are; or they might only be used just to make sure the price in the contract isn't ridiculously high. Some think appraisers always approve any price, but there are cases when they don't.

While you might be able to get a second estimate, that will cost you more money and might not help. Some lenders are risk averse, and others are not.

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