For the vast majority of home sales, the buyer seeks financing from a bank. In that case, the lender will require an appraisal of the property, and the fair market value must match or exceed the amount of the loan. If the home appraisal comes in low, that can potentially put the deal in jeopardy.

We spoke with some trusted appraisers and real estate agents to find out how often the appraised value falls short, some of the reasons it may come in low, what to do in that circumstance, and how a homeowner can proactively prevent that dreaded value gap in the first place.

How often do home appraisals come in low?

Curt Stinson, a top real estate agent from Prima County, Arizona, says that most of his listings appraise at or above the contract price — only about one in 10 properties, or 10%, miss the mark.

John Brenan, chief appraiser at Clear Capital, a Nevada-based financial services firm, echoes that 10% estimate. Certified general real estate appraiser Mason Spurgeon estimates that about 20%, or one in five appraisals, come in lower than the sale price.

Ever wondered whether appraisers know the selling price when they evaluate a home? In most cases, they do — according to the Uniform Standards of Professional Appraisal Practice (USPAP), “an appraiser must, if such information is available to the appraiser in the normal course of business, analyze all agreements of sale, opinion, and listings of the subject property current as of the effective date of the appraisal.”

“It’s always a good idea to give the appraiser the sales contract,” says Spurgeon. “There are times when the sale price and contract are withheld from us because they fear that the appraiser will use it as the basis for the appraisal, but this is not typical. A good appraiser will only analyze the contract and search for sold/closed market sales to complete their opinion of value.”

How accurate are home appraisals?

“Ultimately, an appraisal is an opinion of value, based on data obtained from the marketplace and analyzed by an appraiser,” says Brenan. “Because appraisers are required to be independent, impartial, and objective, and to analyze data from the marketplace, their opinion of value might differ from what a highly motivated buyer is willing to pay.”

He offers the example of a buyer who may fall in love with a property because it reminds them of the home they grew up in, or because it has the dream kitchen they’ve always wanted, and therefore may be willing to make a higher offer than most other buyers. But the appraiser won’t have that emotional reaction to the home, and may not believe that its fair market value supports the price the buyer is willing to pay.

Spurgeon also points out that appraisals are only as good as the data used in the analysis. “An appraisal is the value of a property as of a specific date and time, but the value for real estate is always changing,” he notes. “As soon as another property sells in the neighborhood, your property value could have gone up or down.”

Main reasons for a low home appraisal

“We’ve all heard the old cliché, ‘don’t over-improve for the neighborhood,’ and there’s some truth to that,” says Stinson. “Depending on the surrounding homes and comps, the appraiser will only give you so much, no matter how much you’ve invested in upgrades.”

High demand for the home

If a property has unique features that are hard to find in any given area, it could cause a spike in offer prices, or even start a bidding war. While this might seem like a good position for a seller to be in, the appraisal ultimately might not measure up to those escalated offers, potentially putting the deal in jeopardy.

Rushed appraisals

Rachel Massey, Chief Appraiser at Massey & Associates Valuation Services in Saline, Michigan, says a home’s value is sometimes deemed to be lower than the sale price due to a lack of adequate research, which is most often driven by tight turnaround times.

“In this modern age of instant mortgages and instant ‘values’ from computer applications, often users cannot understand the need for the appraiser to do extra due diligence and research that will lead to a more supported opinion,” she explains.

“Bad” data or appraiser is unfamiliar with the market

If an appraisal comes in erroneously low, it could be due to an appraiser using poor comparable sales data or just not being competent in the market, notes Spurgeon. “Some banks will engage appraisers who are from out of the area and don’t have access to the local sales data,” he says. “In that case, the appraiser is forced to use data that is fed to them from other sources, and may or may not be correct.”

Not using a real estate agent

According to Spurgeon, one of the main reasons for a disparity between appraisal and contract is neither the buyer nor the seller using a real estate professional. “If the buyer or seller employs a realtor or an appraiser in their transaction, the sale price and market value are typically in line,” he says.