Appraisal Process and Outcomes: What Happens When Value Doesn't Match Price

You offered $950,000. The seller accepted. Then the appraisal comes back at $920,000. Now what?

The appraisal is your lender's protection against lending more than the home is worth. It's also your protection against overpaying. But in Seattle's competitive market, appraisals sometimes lag behind rapid price increases, creating gaps between contract price and appraised value.

In this article, you'll learn what appraisers do, how they determine value, the three possible outcomes, and your options when appraisals come in low—with real Seattle examples throughout.

What Is an Appraisal?
Who Conducts Appraisals and Their Qualifications
Appraisal vs Home Inspection: Key Differences
The Appraisal Process
Three Possible Outcomes
Handling Low Appraisal
Appraisal Gap Coverage
Seattle Appraisal Challenges
Summary: Key Takeaways
Next Steps

What Is an Appraisal?

An appraisal is an independent, professional opinion of a property's fair market value. In nearly all financed home purchases, lenders require it before final loan approval.

Why? Because your home is the collateral for the mortgage. Lenders need to confirm the home is worth at least what they're lending you. Without this safeguard, banks would risk over-lending on inflated contracts.

For buyers, the appraisal protects you from dramatically overpaying in a bidding war. It's also used for refinancing, insurance documentation, and sometimes property tax disputes.

Who Conducts Appraisals and Their Qualifications

In Washington, appraisals are performed by state-licensed or state-certified appraisers who must:

Complete 150–300+ hours of specialized coursework.
Log supervised field experience.
Pass state/national exams.
Stay current with continuing education.

Appraisers follow the Uniform Standards of Professional Appraisal Practice (USPAP), which require impartiality and detailed documentation.

They are usually assigned through your lender (often via an Appraisal Management Company, or AMC) to maintain independence—buyers and agents cannot hand-pick "friendly" appraisers.

Appraisal vs Home Inspection: Key Differences

Many first-time buyers confuse appraisals with inspections. Here's the key difference:

Appraisal: For the lender. Focus = market value.
Inspection: For the buyer. Focus = property condition.

Think of it this way: the appraisal answers "What is it worth?", while the inspection answers "What shape is it in?".

Cost:

Appraisal: ~$600+ in WA (varies by property type and loan).
Inspection: ~$400–$700, depending on home size.

The Appraisal Process

Timeline

Day 1-5: Order placed

Lender orders appraisal
Appraiser assigned
You pay fee (~$850)

Day 5-10: Scheduling

Appraiser contacts listing agent
Schedules property visit
Typically 30-60 minutes
You don't need to be present

Day 10-14: Property inspection

Appraiser visits property
Measures home
Takes photos
Notes condition
Reviews features

Day 14-21: Report preparation

Appraiser researches comparables
Analyzes data
Writes report
Reviews and submits

Day 21: Report delivered

Lender receives report
Reviews for accuracy
Shares with you
Determines if loan approved

Total time: 2-3 weeks typical

Delays possible from appraiser scheduling, complex properties, lack of comparables, or report review issues.

What Appraiser Examines

Exterior:

Overall condition
Siding and roof
Lot size and landscaping
Garage and parking
Outbuildings

Interior:

Square footage (measures)
Room count and layout
Condition and updates
Flooring and finishes
Kitchen and bathrooms
Mechanical systems (age, condition)

Neighborhood:

Location and desirability
Nearby amenities
School district
Market trends
Comparable sales

Does not:

Inspect like home inspector
Test systems
Look for defects
Open walls or crawlspace
Provide repair estimates

How Value Is Determined

Sales comparison approach (primary method):

Find 3-6 comparable sales
Adjust for differences
Arrive at value range
Determine final value

Comparable criteria:

Sold in last 3-6 months
Within 1 mile (closer better)
Similar size (within 20%)
Similar age and condition
Same property type
Similar features

Adjustments made for:

Square footage
Bedrooms/bathrooms
Garage/parking
Lot size
Condition/updates
View
Location within neighborhood

Seattle Example: How Appraisers Calculate Value

Subject property:

1,800 sqft, 3 bed, 2 bath
Built 1960, updated kitchen
1-car garage, no view
Ballard
Contract price: $950,000

Comparable 1:

1,750 sqft, 3 bed, 2 bath
Built 1955, updated
1-car garage, no view, Ballard
Sold: $900,000 (2 months ago)
Adjustment: +$25,000 (50 sqft smaller)
Adjusted value: $925,000

Comparable 2:

2,000 sqft, 3 bed, 2.5 bath
Built 1965, fully remodeled
2-car garage, partial water view, Ballard
Sold: $1,050,000 (1 month ago)
Adjustments: -$100,000 (larger, better), -$30,000 (garage), -$50,000 (view)
Adjusted value: $870,000

Comparable 3:

1,800 sqft, 3 bed, 2 bath
Built 1958, original condition
No garage, no view, Ballard
Sold: $850,000 (3 months ago)
Adjustments: +$30,000 (subject updated), +$40,000 (subject has garage)
Adjusted value: $920,000

Appraiser's conclusion:

Adjusted comp values: $925,000, $870,000, $920,000
Comp 2 is outlier (too many differences)
Average of comps 1 and 3: $922,500
Final appraised value: $920,000

Result: Appraisal $30,000 below contract price

Three Possible Outcomes

Outcome 1: Appraisal at or Above Contract Price

What it means:

Property worth at least what you're paying
Lender will approve loan
No issues
Move forward to closing

Example:

Contract price: $900,000
Appraised value: $905,000
Result: ✅ No problem

Your action:

Remove appraisal contingency
Proceed to closing

Frequency:

Normal market: 80-85% of appraisals
Hot market: 70-75% (more low appraisals)
Slow market: 90%+ (fewer low appraisals)

Outcome 2: Appraisal Above Contract Price

What it means:

You're getting a good deal
Instant equity
Lender happy

Example:

Contract price: $850,000
Appraised value: $880,000
Result: ✅ You have $30,000 instant equity

When this happens:

Slow market
Motivated seller
Priced below market
Multiple price reductions

Frequency: Rare (5-10% of appraisals), more common in slow markets

Outcome 3: Appraisal Below Contract Price

What it means:

Property worth less than contract price
Gap between price and value
Lender won't loan full amount
Problem to solve

Example:

Contract price: $950,000
Appraised value: $920,000
Gap: $30,000
Result: ❌ Problem

Your options:

Seller reduces price
You pay difference in cash
Split the difference
Challenge the appraisal
Cancel contract

When this happens:

Hot market (prices rising fast)
Bidding war (overpaid)
Unique property (hard to value)
Poor comparables

Frequency:

Normal market: 10-15% of appraisals
Hot market: 20-30% (more common)
Slow market: 5-10% (rare)

Handling Low Appraisal

Understanding the Gap

The math:

Contract price: $950,000
Appraised value: $920,000
Gap: $30,000

Lender's position:

Will only loan based on appraised value
Your loan: 80% of $920,000 = $736,000
Not 80% of $950,000 = $760,000
Difference: $24,000 less loan

Your position:

Agreed to pay $950,000
Need to bring extra $24,000 cash
Or renegotiate price
Or walk away

Option 1: Seller Reduces Price

What happens:

Seller lowers price to appraised value
New price: $920,000
No gap
Deal proceeds

How to request:

"The appraisal came in at $920,000, which is $30,000 below our contract price of $950,000. Our lender will only loan based on the appraised value.

We request that you reduce the purchase price to $920,000 to match the appraisal. This allows the transaction to proceed without either party bringing additional cash.

Please respond by [date]."

When seller agrees:

Motivated to close
No backup offers
Realistic about market
Wants deal done

Seattle example:

Ballard house, contract $950,000
Appraisal: $920,000
Seller reduced to $920,000
Deal closed

Option 2: Buyer Pays Difference

What happens:

You bring extra cash
Pay gap at closing
Price stays same

The math:

Original down payment (20%): $190,000
Gap: $30,000
New cash needed: $220,000
Plus closing costs: ~$15,000
Total cash at closing: $235,000

When to do this:

You have extra cash
You love the home
Appraisal seems low
Competitive market

Risk:

Paying more than appraised value
Less equity at start
Harder to refinance
May affect resale

Option 3: Split the Difference

What happens:

Both parties compromise
Share the gap
Practical solution

The math:

Contract price: $950,000
Appraised value: $920,000
Gap: $30,000
Split: $15,000 each
New price: $935,000
You bring extra: $12,000 cash

How to propose:

"We propose splitting the appraisal gap:

Original price: $950,000
Appraised value: $920,000
Gap: $30,000
New price: $935,000 (split difference)

This allows both parties to compromise and move forward with the transaction."

Seattle example:

Fremont townhome, contract $800,000
Appraisal: $780,000
Split difference: $790,000
Both parties agreed

Option 4: Challenge the Appraisal

When to challenge:

Obvious errors (wrong square footage)
Poor comparables used
Better comps available
Appraiser unfamiliar with area

How to challenge:

Review appraisal carefully
Find errors or better comps
Your agent provides to lender
Lender requests reconsideration
Appraiser reviews
May or may not change value

Success rate: Low (10-20%), only if clear errors

Timeline: 3-7 days for review, may delay closing

Example challenge:

"We respectfully request reconsideration of the appraisal for [address].

Errors noted:

Square footage listed as 1,700 sqft. County records show 1,800 sqft.
Comparable 2 is not similar (different neighborhood, 30% larger).

Better comparables:

[Address 1]: 1,800 sqft, sold $935,000, 1 month ago
[Address 2]: 1,750 sqft, sold $925,000, 2 months ago
[Address 3]: 1,850 sqft, sold $945,000, 1 month ago

We request the appraiser review these comparables and the square footage error."

Option 5: Cancel Contract

When to do this:

Gap too large
Can't afford difference
Seller won't negotiate
Appraisal seems accurate

How to cancel:

"We are exercising our appraisal contingency and canceling the Purchase and Sale Agreement dated [date] for the property at [address].

The appraisal came in at $920,000, which is $30,000 below the contract price of $950,000. We are unable to proceed at the contract price, and the seller has declined to reduce the price.

Please instruct escrow to return our earnest money deposit."

Timeline: Notify within appraisal contingency period (typically 17 days from acceptance)

Appraisal Gap Coverage

What It Is

Definition: You agree to cover gap between appraisal and price, up to specified amount, included in offer.

Example offer term:

"Buyer will cover appraisal gap up to $30,000. If appraisal comes in below purchase price, Buyer will pay the difference in cash up to $30,000."

When to Offer

Competitive situations:

Multiple offers expected
Hot market
Desirable property

When you have cash:

Reserves available
Can afford gap
Won't deplete savings

How Much to Offer

Conservative: $10,000-$15,000

Shows commitment
Manageable risk

Moderate: $20,000-$30,000

Competitive
Covers typical gap
Seattle common range

Aggressive: $40,000-$50,000+

Very competitive
High risk
Large cash reserves needed

Risks

You pay more than appraised value
Less equity at start
Harder to refinance
Depletes cash reserves
May not be necessary

Seattle Appraisal Challenges

Rapid Price Increases

The problem:

Prices rising 5-10% in 3 months
Appraisals use 3-6 month old sales
Appraisals lag current market

Solution:

Appraisal gap coverage
Expect gaps in hot market
Have cash reserves

Micro-Market Variations

The problem:

Seattle neighborhoods vary significantly
Ballard ≠ Beacon Hill
Queen Anne ≠ Rainier Valley
Appraiser must understand nuances

Example:

Lower Queen Anne: Urban, walkable, $700/sqft
Upper Queen Anne: Residential, views, $800/sqft
Can't use Lower QA comps for Upper QA

Solution:

Appraiser familiar with Seattle
Provide good comps to agent
Challenge if poor comps used

Unique Properties

The problem:

Hard to find comparables
View properties
Historic homes
Unusual features

Example:

Houseboat in Lake Union
Few comparable sales
Wide value range

Solution:

Expect appraisal challenges
Provide all available comps
Have backup plan

Summary: Key Takeaways

Appraisal ordered by lender, takes 2-3 weeks, costs ~$850 in Washington (2025)
Appraiser uses 3-6 comparable sales to determine value
Three outcomes: at value (good), above (great), below (problem)
Low appraisal options: seller reduces price, you pay gap, split difference, challenge, or cancel
Appraisal gap coverage: agree to cover gap up to amount ($20,000-$30,000 typical in Seattle)
Challenge appraisal only if clear errors or poor comps (10-20% success rate)
Seattle challenges: rapid price increases, micro-markets, unique properties
Have cash reserves if offering above recent comps

Next Steps

Understand your loan amount based on appraisal vs price
Have cash reserves if offering above comps
Review appraisal carefully when received
Discuss options with agent if appraisal low
Negotiate with seller if gap exists
Challenge if appropriate (clear errors only)
Remove contingency or cancel contract

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This article provides general guidance and should not be considered financial or legal advice. Appraisal outcomes and strategies depend on your unique situation and market conditions. Consult with your real estate agent, lender, and financial advisor for personalized recommendations.