Will My House Appraise for Its Selling Price? 10 Tips to Avoid a Low Valuation

If you’re selling a home in the current shifting housing market, you may be wondering, “Will my house appraise for the selling price?” In today’s market, with rapid home price increases and still-limited inventory in some markets, over half of homes are appraised for more than their sale price — the highest share since March 2020.

That’s according to an analysis by Corporate Settlement Solutions (CSS), which looked at home sales in 10 states on the East Coast and Midwest during the first half of 2024. In that time, only 8.4% of sold properties had a contract price above the appraised value.

The odds of an appraisal coming in low are just that — relatively low. To quash any worries, we’ll take a closer look at the appraisal process, the factors that can lead to a low valuation, and expert tips to prevent this from happening.

Trends and changing market conditions

The 2024 National Association of Realtors® (NAR) Home Buyers and Sellers Generational Trends survey reveals that 25% of buyers paid more than the asking price in the 12-month period ending June 2023. The largest share of buyers paid the full asking price (31%), followed by buyers who paid 95%–99% of the asking price (27%).

With more inventory hitting the market and home sales on the decline, 2024 buyers have greater leverage when it comes to pricing. NAR Chief Economist Lawrence Yun described further significant price hikes as “unlikely” as we approach “a balanced market condition.”

In a slower market, homes frequently appraise for more than the sale price, which is what we’re seeing play out now. Although inventory is improving, the market remains in favor of sellers, making comparable sales (or comps) harder to come by. Additionally, the rapid appreciation of home prices has made accurate valuations more challenging.

When does a home appraisal happen, and why?

Whenever a buyer is financing the purchase of a home or refinancing a mortgage, an appraisal of the property is typically required to assure the lender that the loan-to-value (LTV) ratio meets their underwriting guidelines. This is according to the Appraisal Institute, the nation’s largest professional association of real estate appraisers.

Lenders want assurance that the buyer isn’t over-borrowing since the home serves as collateral for the mortgage. If the borrower defaults on the mortgage, the lender wants protection against lending more than it might be able to recover.

The appraisal process involves an impartial qualified appraiser who is licensed or certified. The appraiser collects information and data in order to determine the property’s value.

Some of the factors under consideration include:

Zoning
Hazards, such as FEMA flood zones
The neighborhood
Size, age, and condition of the property
Construction details (type of foundation, type of materials used)
Improvements made to the property
Features, such as swimming pools or an accessory dwelling unit (ADU)

FHA and VA loans have additional requirements an appraiser must evaluate, most of which relate to safety and soundness.

Appraisers then compare their findings with appraisal and market data, such as Fannie Mae’s Collateral Underwriter, and use a comparative market analysis (CMA), incorporating comps that mirror your house in size, square footage, number of beds and baths, and location, in order to determine your home’s current market value.

Paul Grossmeier, CEO of Grossmeier Appraisal Service, LLC, in Mukwonago, Wisconsin, who has been appraising real estate for over 30 years, explains that appraisers use historical data to estimate present-day value.

He often consults the Marshall & Swift Residential Cost Handbook, which provides historical cost indices for a wide variety of housing styles, the classifications for building quality, corresponding descriptions, and example photographs.

However, in the changing market, more recent data is favored over historical data. According to Holly Mitchell, a top agent who completes 11% more sales than the average Yarmouth, Maine agent, Appraisal Management Companies (AMC) now want sales within the past 90 days instead of six months. “It’s all about time — what’s happening right now.”

To best reflect market conditions, Mitchell continues, most AMCs want to see the last three closed sales, but a maximum of 90 days helps eliminate seasonality impacting sales.