The Difference Between Sales Price and Appraisal Value

You may wonder why a home’s sales price and appraisal value sometimes don’t match up. Whether you’re buying a home or selling a home, it’s important to know how they can differ, especially in today’s hot housing market.

Home Sales Price

The housing market is, of course, influenced by the fluctuations of supply and demand. In many of today’s housing markets around the country, there is far higher demand than supply due to factors like people moving to less expensive areas for remote work and historically low interest rates.

When this is the case, home values rise because people are willing to pay more to get a home in that market. Bidding wars can drive home prices far above what they would be in a more balanced market. And, as we’ll see, this number can really differ from a home’s appraised value.

What is a Home’s Appraisal Value?

An appraiser is hired by a lender to act as a neutral third party to assess the value of a home. This is to ensure that they are not lending more money than the home is actually worth.

The appraiser uses comps to settle on a home’s value. Comps are homes in the immediate area of the subject home that have been sold recently. They also must be similar to the subject home so there can be a good comparison.

Comps may include any homes in the area sold in the past three to six months with the same number of bedrooms, bathrooms, and square footage. Different factors (like an extra half bath) might add value, while an unfinished basement, for instance, may subtract from the appraised value.

In other words, appraised value is determined by what a buyer paid for a similar home in the recent past.

Why Some Appraisals are Coming in “Low” Right Now

We’re seeing more and more appraisals coming in below the sales price right now, and that’s for several reasons.


COVID-19 really hindered the housing market last year. Many fewer homes than normal sold, and since appraisals are strictly based on recent sales, in some cases, there simply aren’t enough recent sales to justify higher values.

As we see more homes sold, we will see the supporting data increase as well. This will allow appraisers to increase home value in the markets that support it. Until then, the road can be a little rocky, since appraisers need at least three comparable, recent sales.

Inventory Shortages

This is what we’re seeing right now: appraisals are coming in lower than the sales price because buyers are willing to pay more than a home’s appraised value.

In hot markets (and there are many around the country right now), there simply isn’t enough inventory to go around. The pandemic seems to have accelerated the demand for houses, in part because of historically low interest rates, less expensive places becoming hot spots for remote work, or employers moving to a new area.

This need to compete for homes means that more and more buyers are ending up in bidding wars and are paying more (sometimes, far more) than asking price. The price that people are willing to pay for a house is not always the same thing as its appraised value.

This discrepancy is likely going to increase in coming months, so it’s important to be aware that this might be an issue and to think through ways of resolving it.

Appraisal Changes Due to the Pandemic

The pandemic required appraisal regulations to adapt. With people uncomfortable having appraisers come into their homes and appraisers uncomfortable going to them, some new guidelines had to be made so home transactions could continue to move forward.

This means that we’ve been seeing a lot of:

  • Appraisal waivers (where no appraisal is done on the property)
  • Hybrid appraisals (where a third party collects the data and an appraiser does a valuation)
  • Desktop appraisals (where the appraisal is done by gathering information online only)

The problem with these appraisals is that they can miss things. Information about upgrades, below-grade square footages, a home’s true condition, and more may not be assessed correctly.

In the end, the most important thing is appraised value. The sales price doesn’t matter to the lender, so it’s important to be aware of the differences between the two numbers and plan accordingly.

Alex Todak