Sale prices rise; Appraisals may tell different story Across the country, real estate agents are reporting a strong sellers market driven by lower unemployment and tight inventory of existing homes. More people have more money and they want to buy homes but with fewer houses to choose from, prices rise. This is still a great situation when buyers want a house and sellers want to sell. But an appraisal can sometimes throw a wrench into the deal. What happens when appraisals are lower than the agreed prices? Since mortgages are based in part upon appraisals, deals can quickly change. In a market that has gone from cool to hot, appraisals can't follow along with rising prices, according to Market Watch. That's because appraisals look to the past. An appraiser considers how much similar properties in the area have sold for in the recent past. If past sales were slow and prices were down, but current sales are brisk with prices rising, appraised value probably will be lower than the asking price. Of course, a good appraiser will look at properties under contract and this might help boost appraisals. To account for appraisal problems, most purchase contracts have an appraisal contingency stating that the property must appraise at or above the contract price. If the property appraisal comes in low, the deal changes. The buyer can put more money into the deal or the seller can agree to sell at a lower price. With a contingency in place, the buyer may terminate the deal and lose nothing if the appraisal is low and the deal can't be renegotiated. Here is an example of what can happen. Let's say a buyer has agreed to purchase a house for $200,000. The buyer agrees to put $20,000 down and hopes to finance $180,000. But the house appraises for $175,000. Now the lender will only finance $140,000 and, with the buyer's $20,000, this doesn't add up to the appraised value of $175,000. The buyer will have to bring $15,000 more to the table or the seller will have to accept a lower price. The difference isn't always that dramatic.