Why do appraisals lag the market or come in below contract price?

Closed sales are last month's news

An appraisal is built mostly on comparable sales (comps) that have already closed. That is the strength of the method. A closed sale is a real price a real buyer paid.

It is also the weakness. A sale that closed this week was usually negotiated weeks earlier. By the time it shows up as a closed comp, the deal behind it may be one or two months old. In a fast-rising market, that is like judging today's gas prices by last month's receipt.

The tool that fixes this is a time adjustment, also called a market conditions adjustment. It moves each comp's price from its contract date to the appraisal's effective date. When it is skipped, or made too small, the appraisal trails the market. When the market is rising, trailing means low.

What FHFA found about low appraisals

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, studied this in a pair of research posts published in January 2024. Here is what they found:

• Low appraisals spiked when prices did. From 2013 to 2020, 7% to 9% of appraisals each year came in below contract price. That rose to 15% in 2021 and 12% in 2022.
• Time adjustments were rare. For much of 2018 through 2021, appraisers adjusted fewer than 10% of comps for time. Even during the 2021 price surge, the share rose only to about 25%.
• When made, they ran small. Where a price index predicted a 5% adjustment, actual adjustments averaged about 3%.
• The adjustment often decided the outcome. In a sample of purchase appraisals from late 2018 through 2021, about 23% of homes would have been below contract before time adjustments. After them, about 12% were.

FHFA also found time adjustments were used on 18.4% of properties in majority-white neighborhoods but only 13.4% in majority-Black ones. A missing line on a form is not a small thing when it falls unevenly.

What changed for appraisers in 2025

Fannie Mae tightened its expectations. Under its Selling Guide, the appraiser must analyze every comp for market change since its contract date, and time adjustments, or the lack of them, must be supported by evidence. The report has to summarize that evidence and name the data sources and tools used.

The guide also requires the overall market trend in the report to be based on at least 12 months of data. HousingWire reported that the updated requirements took effect February 4, 2025.

That 12-month trend is the big picture, not the adjustment itself. Fannie Mae notes that a single comp's time adjustment can differ from the yearly trend. A market can be up over the year and flat over the last two months.

I read the market in real time for exactly this reason. I test the most recent window the data supports, such as 30, 60 or 90 days, and I show the reader what that window says. A lazy year-long average can be low in a rising market and high in a falling one.

Not every low appraisal is a lag

Here is the part nobody at the closing table wants to hear: sometimes the appraisal is right and the contract is high.

The contract price does not set value. It is what one buyer and one seller agreed to, often after a bidding war, an escalation clause or a buyer who fell in love with the backyard. The appraiser's job is to measure what the wider market supports, not to confirm a single deal.

A low appraisal can come from a lag, from weak comps, from a missed feature or from a contract that ran ahead of the evidence. Before you fight it, figure out which one it is. Arguing about time adjustments when the real issue is a buyer who paid for a view the comps also had is a long way to lose an argument.

Remember too that the lender usually bases the loan on the lower of the contract price or the appraised value. Fannie Mae spells that out for purchase loans. So when the appraisal is right and the contract is high, the gap does not disappear. Somebody covers it, the price moves, or the deal changes shape.

What to do if you think the appraisal lagged

1. Read the time adjustment line. Check whether older comps were adjusted, and whether the report explains why or why not.
2. Check contract dates. Look at when each comp went under contract as well as when it closed. A comp that signed six months ago in a moving market needs an adjustment or a good reason for none.
3. Gather newer evidence. Collect recent closed sales and pending sales that went under contract after the appraiser's comps. Resales of the same house, with no major changes in between, show market movement clearly.
4. Ask through the lender. Submit a reconsideration of value request through the lender, not directly to the appraiser. Keep it to facts: addresses, dates, prices and why each one matters.
5. Get a second opinion if the stakes are high. A desktop review is a second look at someone else's appraisal, checked against the evidence. It can tell you whether you have a real issue before you spend the time to argue it.

Facts over feelings works for both sides. If the evidence supports the appraisal, the evidence also tells you it is time to renegotiate.