Buying a home can be fun and exciting, especially when you drive a hard bargain and get that seller over a barrel. You did your research, caught a home with higher than average days on the market, and the seller was getting a little desperate. You made a low first offer, just short of so small they would tell you to take a hike. After some back and forth, you seal the deal at a price you know is more than 10% below the real market value of the home.
Now you're just working through the transaction process. Your mortgage isn't going to be a problem, as you have excellent credit and 20% for the down payment. The title binder looks fine, and there haven't been any surprises. You're proud of your cost research and negotiation skills. Then the appraisal comes in, and you're disappointed to see that the value is what you agreed to pay. What happened to that below-market bargain? You expected to see the appraisal verifying your good fortune, but it came in at the contract price.
The Job of the Appraiser
In this and most home purchases, the appraiser's employer is the lender. The job of the appraiser is to provide a value that covers the investment of the lender in case you default. That 10%+ below the market price you believe you negotiated is real, but the appraiser often will not validate it for you. By coming in at the agreed-upon contract price or not much above, the appraiser has done their job and kept the deal in play. Coming in with a value significantly higher isn't going to make the lender happy, as it's a numbers game and the number has to be at or above the purchase price.
The Declining Market Factor
After the housing and mortgage crash that began in 2007, the rules for lenders got dramatically modified. A lot more restrictions were put into play with the intent of avoiding loans to buyers for homes they couldn't afford. The rules for selecting appraisers and for how they valued homes also changed. Lenders can no longer choose any appraiser they want. Instead, they pull one from a pool, at times getting an appraiser from out of the market area.
Then the appraiser must assess the current market to determine if prices are rising or declining, or if the market is stable. If prices are going down, the cost of the home you're buying will reflect the decline of the local market as a whole. That doesn't necessarily mean your home is worth less, only that the market's general condition indicates that it may be.
If you want to prove to yourself that you got that great deal, you can hire an appraiser, spend a few hundred dollars, and probably find that you're right. That's because this appraiser is working for you, not the lender, and you aren't going to be using the valuation for a default and foreclosure process.