An appraisal is a standard step in the home purchasing process that lenders use to determine the value of a home. It ensures that the amount they borrow matches what the property is actually worth. If the appraisal comes in below the purchase price, buyers may have to put down additional money to fill the gap between the home’s actual value and the loan amount.
But an appraisal that is higher than the offer is almost always good news for buyers. When a home is highly valued, it means the property is worth more than what you pay, giving you built-in equity before you even move in. While it won’t change your loan terms or lower your down payment, it could benefit you later if you refinance, cancel private mortgage insurance (PMI), or sell.
Here’s what happens if the appraisal comes in higher than your offer, whether you’re buying a home in Asheville, NC or a home in Austin, TX.
Is it okay if the appraisal is higher than the offer?
When the appraisal shows that a home’s value is higher than the purchase price, it usually means that comparable homes are selling for more, there are improvements to the home that are not listed, the market is rapidly appreciating in value, or the home is priced below market value.
But when the appraisal comes back high, it can also bring certain advantages for buyers:
1. You receive immediate equity
Home equity is the difference between a home’s value and what you owe. If the appraisal is higher than the contract price, you start homeownership with built-in equity.
Example:
- Purchase price: $400,000
- Appraised value: $420,000
- Direct equity: $20,000
This equity won’t change your loan structure, but it will put you in a stronger financial position before you even move in.
2. LTV is still based on the purchase price
Even with a higher appraisal, lenders calculate your loan-to-value ratio (LTV) based on the lesser of the appraised value or purchase price. With a high appraisal, your LTV ratio improves, because the loan amount is still based on the lower purchase price, instead of the higher home value.
3. It can help you remove PMI sooner
While PMI costs don’t change immediately based on a high home appraisal, starting with a higher equity means you can reach the 20% equity threshold, or 80% LTV ratio, more quickly. Depending on your loan manageryou may be able to remove PMI sooner than expected through refinancing and confirmation of the higher home value.
Will a higher appraisal reduce my down payment or change my loan?
No, a higher appraisal will not reduce your required down payment or change your mortgage terms. Lenders typically base the loan amount and down payment on the purchase price or appraised value, whichever is lower.
If the appraisal comes in above your offer, the purchase price will be the lower number, so your loan amount, down payment percentage, and interest rate will remain the same. You don’t necessarily need to have extra borrowing power; the benefit of the higher valuation will manifest itself in the form of additional equity, and not in the form of different loan conditions.
- Deposit: Still calculated as a percentage of the contract price.
- Loan amount: Determined based on the lower of the purchase price or appraisal.
- Interest: Based on credit, loan program and the market, not appraised value.
A high appraisal only confirms that the house is worth at least what you pay; it does not change the financing terms you have already agreed to.
Can the seller withdraw if the home is valued higher than the offer?
Usually a seller cannot cancel the purchase agreement just because the appraisal was high. Once both the buyer and seller agree to a purchase price and sign the contract, that price is generally set from a loan perspective.
A seller may only be able to withdraw after a high appraisal if:
- The buyer does not comply with the contract conditions and obligations.
- The agreement includes a seller-specific contingency.
- Both buyer and seller agree to terminate the contract.
A high appraisal alone does not give the seller any power to renegotiate the price or try other offers. In fact, it’s unusual for sellers to even know about the appraisal results unless they come in below the listing price.
Are there any disadvantages to an appraisal that is higher than the offer?
A higher appraisal is usually good news for buyers, but sometimes there are situations where it can lead to some disadvantages or minor complications.
1. The seller may feel he priced the house too low
A high appraisal may cause some sellers to question their prices. The report shouldn’t change the contract, but it could make sellers less flexible during repair requests or negotiations if they become aware of the value difference and think they left money on the table.
2. It will not reduce your down payment or monthly payment
Even though the home is worth more, lenders still base your loan on the lesser of the purchase price or appraised value. Your required down payment and mortgage costs will therefore not decrease, but remain the same.
3. It can shape expectations about property taxes
Property taxes are based on the county’s assessed value, which may increase over time in high-demand markets or rapidly appreciate in value. In some cases, multiple homes appraising above list price can even lead to higher tax value adjustments. On the other hand, if the purchase price of your home has been reduced due to necessary repairs not reflected in the appraisal, future tax bills may not accurately reflect what the home is worth.
4. It can change the negotiation dynamic
If the house is valued well above your offer, a seller may feel like he or she is already giving you a deal. That can make further negotiations more difficult, although the assessment usually takes place after repair negotiations.
5. It is not a guarantee of future value
A high appraisal reflects the current market, but is no guarantee of future value. The housing market can go up or down over time. That is why a home is often seen as a long-term investment.
In short
In any housing market, starting your homeownership with extra equity can be a bonus for buyers, without any additional work or costs. Your loan terms and down payment will remain the same, but you can be proud that you are purchasing your new home for less than current market value.
Frequently Asked Questions: What happens if the appraisal is higher than the offer?
Is it okay if the appraisal is higher than the offer?
Yes. A higher appraisal means that the home is worth more than the agreed price, which means the buyer immediately has excess value. It doesn’t change the loan terms, but it strengthens the buyer’s financial position and can support future goals such as refinancing or removing PMI.
Can a bank lend more than the appraised value?
Lenders base the loan amount on the lower of the purchase price or the appraised value. If the appraisal is higher, the lender will not increase the loan. The loan remains based on the contract price. If the appraisal is lower, the lender can reduce the loan amount to match the value of the home instead of the purchase price.
Can an appraisal harm the seller?
A high appraisal does not harm the seller, unlike a low appraisal where the seller may have to reduce the price or compromise on the contract terms. The only potential downside of a high appraisal for a seller is that it may mean the home is priced below market value, but it will not affect the signed contract.
Can the seller withdraw if the appraisal is higher than the offer?
Usually not, a seller cannot cancel the contract just because the appraisal is high. Once the purchase agreement is signed, the price is typically locked in unless the contract contains a seller-specific contingency, a price reduction is proposed during repair negotiations, or both parties agree to terminate the deal.
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