Desperate to win bidding wars in low-supply, high-demand markets, buyers often offer well over asking price, only to see the deal stall because the appraisal falls short of mortgage requirements.
This leaves them with a stark choice—either pay out of pocket to bridge the financing gap or walk away from their dream home.
Ted Koczon, a real estate agent with eXp Realty specializing in Middlesex and Monmouth counties in New Jersey, says there is a growing friction in the regional market, where growing demand from buyers moving from New York City is triggering intense competition.
"Buyers are almost borderline desperate to get into these towns, specifically Holmdel, Colts Neck, Little Silver, Middletown, and they're willing to do anything to win the bid," Koczon tells Realtor.com®.
Winning typically involves offering tens of thousands of dollars over listing price and waiving an appraisal contingency—a promise to the seller that the buyer will not back out of the deal if the home's appraised value comes in below purchase price.
How are homes appraised?
Lenders rely on property appraisals to determine a home's collateral value to shield themselves from financial risk. If a borrower defaults on their mortgage, the lender needs to know the home can be sold to recover the loaned amount.
However, because appraisals are based on comparable sales—commonly known as "comps"—from three to six months earlier, agents complain that they are not keeping pace with real-time market demand.
"The comps are really just telling us ancient history," says Koczon. "A home is worth what somebody's willing to pay today."
When it comes to the appraisers dispatched by lenders, the agent stresses that the present-day market dynamic carries little weight with them.
"They cross the t's and dot the i's, so there's not a lot of leeway in terms of convincing them that, 'look, in this town there is a bidding war on this house ... the market is really hot,'" argues Koczon. "They don't really pay attention to that."
The resulting "appraisal gap"—the difference between a home's purchase price and its lower appraised value—can cause deals to collapse, sending homes right back onto the market.
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A 2025 Appraisal Issues Survey conducted by the National Association of Realtors® found that the most common reason a transaction fell through as a result of an appraisal was appraised value (63%).
Furthermore, nearly half of survey respondents (48%) said the appraiser's lack of knowledge or use of inappropriate comps to determine the value of the home derailed the transaction.
The fourth most common reason for a sale not going through was buyers unable to cover the appraisal gap.
Waiver reality check
Koczon recalls a recent client who was looking to purchase a home in Marlboro, NJ, listed for $1.5 million. The buyer offered $50,000 over asking but refused to waive the appraisal contingency, causing the deal to unravel.
In another case, the agent says a buyer went against his attorney's recommendation not to agree to a waiver and was able to secure a home he fell in love with in a competitive 55-plus community after putting in an offer significantly higher than the listing price.
"It's a tricky situation, because if your buyer's not willing to waive the appraisal and step up to the plate to bring more money to the table, it's hard to get offers accepted," says Koczon.
In Central New Jersey, average appraisal gaps range from $10,000 for homes selling below $1 million to $50,000 for high-end properties priced above $2 million.
Koczon notes that many buyers misunderstand the appraisal process, and data backs up this trend: The 2025 NAR survey shows that 44% of agents report that most or all of their clients have no idea what an appraisal gap is when they first start working together.
West Coast perspective
These appraisal headwinds are not limited to the East Coast. Victor Currie, a real estate agent at Douglas Elliman Real Estate in Los Angeles, says that buyers are often too hyper-focused on beating the competition to approach the purchase practically.
"In our market, the prices are already high due to the regional housing shortage, so anyone who is stretching to be able to afford the home they want may not have the additional funds to bridge the gap themselves between the appraisal price and the offer they made," Currie tells Realtor.com. "That’s especially common when the price of home insurance may be significantly higher than they expected."
In a bidding war scenario, Currie says sellers are rarely inclined to make pricing concessions due to a low appraisal because they have backup buyers waiting in the wings.
"The most direct advice I tend to give buyers is that their strongest position is to be willing to walk away if the numbers no longer work for them," says Currie. "Home purchases are always emotional, so that isn’t always easy. But neither is ending up house-poor and not being able to enjoy the rest of your life."
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Alexander Kalla, a real estate agent in the San Francisco Bay Area, where the AI boom is driving competition for prime properties, says his standard practice is to run comps with his clients ahead of time to know what offer would be financially defensible.
"Appraisers here are pretty dialed into local market activity, so when offers are grounded in the data, low appraisals are rarely a surprise," Kalla tells Realtor.com. "Most of my clients are analytically-minded anyway or coming in with larger down payments or all cash, and they want to see the numbers before they commit to a number."
Still, Kalla concedes that there are instances when a client falls head over heels for a home and is willing to offer more than what the comps support.
"When that happens, we go in with eyes open. They know upfront it likely won’t appraise, so they either increase their down payment from the start or keep reserves ready to make up the gap if needed," says the agent.
Closing the appraisal gap
When a deal collapses over an appraisal, the fallout damages more than just the buyer's timeline; it leaves a lasting mark on the property itself. Koczon warns that after a home returns to the market after being marked as "pending," it appears "stale" and leaves potential buyers to wonder if there is something wrong with the property.
Ultimately, real estate experts agree that successfully navigating the appraisal process requires open communication among buyers, sellers, and agents.
"Most of these situations are just another point of negotiation between the parties, but finding some common ground isn’t always easy," says Currie. "Do the buyers have the additional funds available? Is the seller willing to contribute toward closing the gap? Is the home in an area that’s hot enough to justify taking the risk and covering the difference or in a declining-price area like some overbuilt parts of the country, where they could find themselves upside down?"
Koczon says he initiates candid financial consultations with his clients to gauge whether they have enough funds to back up an aggressive bid.
The final line of defense against a low appraisal is a formal rebuttal requiring the agent to submit better, more recent, or hyperlocal comps. However, according to some industry estimates, this tactic succeeds only 20% to 25% of the time.
Snejana Farberov is a reporter at Realtor.com covering the U.S. housing market and the latest domestic real estate trends. She has worked as a general assignment journalist in New York City and Long Island for 16 years, writing for New York Post, Daily Mail, and News 12. Snejana earned bachelor's degrees in journalism and Italian from St. John's University, followed by a master’s degree from Columbia University School of Journalism.
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