How Do Multiple Offers Impact a Home’s Appraised Value?

In today’s real estate market, it’s not uncommon for a house to receive multiple offers and sell above the asking price. In fact, depending on your market, this may be the norm at the moment. But just because a home sells for more than the asking price doesn’t always mean the appraised value will match. 

To learn more about the difference between sales price and appraised value, click here.

There are many factors that go into calculating the appraised value of a home. An appraiser will certainly take high demand and multiple offers into consideration when assessing the value of a home, but that is just one of the many things appraisers have to consider.

How Do Appraisers Decide What the Home Is Worth?

Appraisers typically use a blend of hard data found through public record of the home and visual inspection to help determine a home’s value. 

Some of the data appraisers use to determine a valuation are:

  • Square footage of the home
  • Number of bedrooms and bathrooms in a home
  • Lot size 
  • Age of home
  • Price of properties that recently sold in the neighborhood that are comparable to the subject property

Appraisers also gather data from a visual inspection of the property. By examining the inside and outside of the property, they can add or subtract from the appraised value based on what they see. 

These factors include: 

  • The layout of the house. A choppy layout that doesn’t flow and small rooms can equate to a lower value. 
  • Condition of the home. Pristinely clean and well-maintained homes may appraise for thousands more than their neglected counterparts. 
  • The condition of the foundation, siding, HVAC unit, and roof. These are big-ticket items that can greatly impact the appraised value. 
  • Upgrades and renovations. High-quality renovations and upgrades may dramatically increase what the property is worth. 
  • The property’s curb appeal. Nicely kept yards, fences, porches, and driveways add to the home’s appeal, and to its valuation.

Appraisers use a combination of the data from the home, the information they gathered during the property inspection, and comparable sales to determine an appraised value. So how do multiple offers impact the appraised value?

How Do Multiple Offers Impact the Appraised Value?

During a hot real estate market when demand is high, it’s not uncommon to experience multiple offers on a home. Multiple offers may affect the appraisal, as they signal high demand for the property. High demand paired with low housing supply are key price drivers. 

If the appraiser is made aware that there are multiple offers on a property, they can dig deeper to assess whether the current data and market conditions warrant a higher value. It’s important to note that appraisers can’t appraise a property at the highest possible price without justifying their intent to do so with data. 

There’s no guarantee that multiple offers will impact the appraised value of a home. If other data offers strong evidence that the property is worth less, the appraiser may reach the conclusion that the property value isn’t in line with what the multiple offers suggest. Even with multiple contracts offering over the asking price, the appraisal report may show that the home isn’t valued for that amount. 

An appraisal report is built from many pieces of information, including public record data, the condition of the home, and other physical attributes the appraiser sees during the inspection. Multiple offers on a property will never single-handedly determine the valuation in an appraisal, but it may be a contributing factor in the decision. 

What if the Home Appraises for Less Than the Purchase Price?

If an appraisal comes in lower than the agreed-upon purchase price, that doesn’t automatically mean your deal is dead. It is becoming more common for real estate agents to add a low-appraisal contingency to purchase contracts to help address this scenario. 

A low-appraisal contingency clearly spells out the options for the buyer in the event that the appraisal comes in lower than the sales price. This could mean that the buyer agrees to come up with more funds to cover the difference or walks away from the deal altogether. 

Additionally, if your appraisal comes in low, there are steps that can be taken by all parties to help rectify the situation:

  • Dispute the appraisal. If all parties believe the appraised value is incorrect and have evidence to back up the claim, they can file an appraisal dispute. Appraisal disputes often happen when there are errors or inaccuracies found on the appraisal report, or when comparable sales that justify a higher value weren’t used in the original report. If the appraiser agrees with the information provided, a higher appraised value may be warranted.
  • Go back to the negotiating table. The buyer and seller may work with their listing agents to hash out a solution. Depending on their financial situation, the buyer may offer to pay the difference in the price and appraised value as part of their down payment. Or the seller may be willing to reduce the asking price, or the two parties may be able to compromise and meet in the middle.
  • Request a second appraisal. If all parties feel the valuation isn’t accurate, they can decide to order the appraisal again. They would work with the buyer and their mortgage lender to request a second appraisal report. The seller would most likely be required to split the cost of the second appraisal with the buyer, or even foot the bill for all of it. There are no guarantees that the second appraisal will be higher. After all, all appraisers use similar information in determining the property’s value. 

What if the Home Appraises for More Than the Purchase Price?

If the home you’re buying appraises for more than the sales price you’ve agreed upon, congratulations, you’ve just gotten yourself a great deal! That means you’ll have instant equity in your home right out of the gate, and that’s never a bad way to start your homeownership journey. 

Alex Todak