Should I pay the appraisal value for a home, or offer less than that?

Reader question: “I am in the market for a home and will probably make an offer soon. One of the houses I looked at had an appraisal done already. They had it laying out on a dining room table so we could see the appraisal value when we looked at the property. My question is, should I pay the appraisal value for a home, or should I offer less than that if I feel it’s worth less?”

Are you using a mortgage loan? If so, your lender will have a separate appraisal done on the home, before they approve you for the loan. So the seller’s earlier appraisal will become irrelevant. It sounds like they are presenting their report in order to justify the asking price. “See here? We’ve had it appraised, and it really is worth this much. So don’t try to low-ball us.”

The appraisal they had done might be useful to you, and it might not. It doesn’t mean you should skip the comp comparison process. That’s the best “sanity check” for a seller’s asking price. Should you pay the appraisal value of the home, or offer less? It largely depends on the comps (comparable homes sold recently in the same area), and how the target home stacks up against the comps.

Should You Pay the Appraised Value?

In some cases, it makes sense to pay the appraisal value for a home. For instance, if you’re in a quick-moving market where properties sell fast, and the appraised value seems to be consistent with comps, you might want to offer that amount. On the other hand, if the appraisal value seems to be higher than what has sold in the area recently, you should question it.

I’ve seen some real estate “experts” say that you should always offer a certain amount below the appraisal price. They toss out some arbitrary figure, like 10% below the appraised value. This is a silly idea, and for two reasons:

  1. First of all, you probably won’t know what the appraisal is until your lender sends their appraiser out to determine the current market value of the property. You said the sellers had a report sitting out for all to see. This is actually a rare occurrence. It doesn’t usually happen that way. In a typical real estate scenario, the home will be appraised after the buyer has made an offer, and the seller accepts that offer.
  2. In some cases, offering to pay less than the appraised value will simply cause the home to slip through your fingers. This is especially true in a fast-moving market, where there are more buyers in line behind you. If the sellers have had the home professionally appraised, they are probably pretty confident in their asking price. So they are unlikely to accept a lower offer amount (unless they’ve been on the market for a while with no better offers).

So this isn’t the kind of question that can be answered with a simple “yes” or “no” across the board. It’s a case-by-case scenario that requires plenty of localized research into market conditions.