To appraise the value of a home, appraiser's rely on comps, which are prices paid for similar homes sold recently.  Appraisers usually do not inspect the comps and may not have knowledge of of issues with the home that may have affected the sale price and the appraiser may have selected lower priced comps.  Ideally comps should be similar in style, size, location and view.  Sometimes appraisers may have to go out of the area to find comps due to a lack of sales.  Other factors could be what kind of view does it have and is there a finished basement with a bedroom and bath adding additional square footage. The below grade square footage is much lower value per square foot than above grade.  In a rising market, low valuations are pretty common because appraisals are based on sales that closed when prices were lower.  Appraisals can't keep up with how quickly homes are selling in a hot market.  You may have knowingly overpaid due to multiple offers, low inventory or you just had to have it.  Remember  the lender will only lend on the appraised fair market valued any difference in sales price will be your responsibility.  Another factor could be the appraiser is inexperienced with the area and certain nuances they may not have knowledge of.  What are your options if appraisal comes in short?  You may appeal it or ask for a second appraisal. You may also ask the seller to lower the price or split the difference. Every buyer and seller situation differs. If you cannot come to a agreement than you may have the option to walk away in most cases. Check with your lender and Realtor.