Does a House Have to Appraise for the Asking Price or the Financed Price?


The best outcome from an appraisal would be to have the appraised value come in at least as high as the asking price. The bank bases the buyer’s mortgage financing on the appraised value, so a low appraisal compared to the asking or proposed purchase price can lead to problems with completing a sale.

Financing Hinges on Appraised Value

From the lender’s point of view, the most important value when providing a mortgage loan is the appraised value. The appraisal is an independent, professional evaluation of the home’s value in the current local real estate market. The maximum loan amount will be the lending limit percentage of the loan product times the appraised value. For example, if the buyers wants a loan that will provide up to 95 percent of the purchase price, the maximum loan size will be 95 percent of the appraised value or selling price, whichever is less.

Asking vs. Selling Prices

The asking price will be the initial amount the buyer lists the home for sale. In many cases, the actual sale will be at a price higher or lower than the asking price. The appraisal value becomes an issue when the buyer and seller agree on a sales price for the home. However, if the seller knows in advance the appraisal value of the home, it gives her a good starting point for setting the asking price. For example, the asking price may be set above the appraised value, leaving room to negotiate to a lower selling price.

Appraisal Below Agreed Sales Price

A problem with the financing occurs if the appraised value is less than the agreed sales price. For example, a buyer agrees to pay $700,000 for a home, but it only appraises for $675,000. If the loan will cover 95 percent of the appraised value, the max loan the buyer can get is $641,250. To complete the purchase, the buyer needs a down payment of $58,750 instead of the $35,000 down if the home had appraised for the $700,000 selling price.

Working Around a Low Appraisal

A low appraisal number compared to the selling or asking price has the ultimate result of requiring a higher than planned down payment from the buyer. Of course, the buyer may not be able to increase the down payment by thousands or tens of thousands of dollars. It is possible that the seller may be forced to lower the asking price to a value closer to the appraised value. This would allow buyers to be able to purchase the home with down payments and financing that meet the lender loan-to-value limits.