In a bidding war, what primary risk do the parties face when the contracted sales price is significantly above the list price?

When a bidding war results in a contracted sales price that is significantly above the list price, one of the primary risks involved is a lower appraisal. This occurs because appraisers are tasked with determining the market value of a property based on comparable sales and current market trends. If the agreed-upon price greatly exceeds the list price—or comparables in the area—it raises the possibility that an appraisal might not support the higher sales price.

When the appraisal comes in lower than the contracted price, the buyer may face challenges securing financing, as lenders often require that the appraised value meets or exceeds the loan amount. This situation may lead to renegotiations, the buyer coming up with additional funds to cover the gap, or even in some cases, the deal falling through altogether. Therefore, in the context of a bidding war, a notable risk is indeed the likelihood of receiving a lower appraisal that does not align with the inflated sales price, which can complicate the transaction process significantly.