Not every market is like this but at one time or the other over the years it’s very possible that a mini housing boom took place. appraised value comes in lowerPrices in several areas across the country even today are experiencing significant demand for existing housing with sellers asking for and getting full list price.

In other areasthe demand is even greater and the seller finds a bidding war is going on ultimately receiving much more than originally asked. But this can present a problem and it’s not related to the winning bid, but how the property that was paid for above the list price will be reviewed by the lender.

When home prices leap frog one another each month with continuous month-to-month price increases it can affect the appraised value. As lenders evaluate a loan application both the borrower and property must pass muster independently of one another. A borrower may have an 800 credit score, single digit debt ratios and a 50 percent down payment but if the property doesn’t appraise the borrower’s profile can’t overcome the appraisal problem. What’s the problem? A lack of comparable sales.

Appraisals are historical in nature. They don’t suggest what a property might be worth in the future but makes a determination of current value based upon previously closed sales. If homes were selling for $200 per square foot two months ago but now the subject property is selling for $220 per square foot, the property may not appraise. It might, but not high enough to meet the sales price because there are no previous sales recorded.

Lenders use the lower of the sales price or appraised value when determining a final loan amount. If a winning bid for a home came in at $425,000 but the appraised value at $400,000, the lender uses the $400,000 value. The buyer must either bring to the table the $25,000 difference, renegotiate the sales price or walk away from the deal altogether.