Some homebuyers are desperate to get a house and will engage in bidding wars in low-supply, high-demand markets.
They’re so desperate, in fact, that they will bid well over the asking price only to have the deal hit a wall because the appraisal is well below the mortgage requirement, Realtor.com reported.
The buy can either pay out of pocket to bridge the financing gap or walk they can walk away from the home, Realtor.com said.
There is a rising friction in the regional market, where growing demand from buyers moving from New York City is triggering intense competition, said Ted Koczon, a real estate agent with eXp Realty specializing in Middlesex and Monmouth counties in New Jersey.
“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 told Realtor.com.
Thousands Over Asking Price
According to Realtor.com, winning a big can involve 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 should the home’s appraised value comes in below purchase price.
Realtor.com said that Lenders rely on property appraisals to determine a home’s collateral value to shield themselves from financial risk. The lender needs to know the home can be sold to recover the loaned amount should the borrower default on the loan, Realtor.com noted.
But, because appraisals are based on comparable sales, commonly known as “comps,” from three to six months earlier, agents said that they are not keeping pace with real-time market demand.
“The comps are really just telling us ancient history,” Koczon said. “A home is worth what somebody’s willing to pay today.”
When appraisers are sent by lenders, the agent said that the present-day market dynamic carries little weight with them.
An ‘Appraisal Gap’
“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,'” Koczon told Realtor.com. “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 fall apart, sending homes right back onto the market, Realtor.com noted
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%).
And, almost 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 deal.
The fourth most common reason for a sale not going through was buyers unable to cover the appraisal gap, Realtor.com said.
