Some Washington-area home buyers are finding that property appraisals, which lag behind the housing market by several months, may not support contract purchase prices, creating problems when they go to their lenders for a mortgage.

The problem is not new for appraisers or lenders, but is rarely seen by the public until housing prices start escalating quickly, as happened in many Washington neighborhoods after interest rates dropped below 11 percent early this spring. It can wreak havoc with a loan application.

Most lenders are unwilling to make a loan based on a property value above the appraised value. If a home buyer has agreed to pay more than the appraised value for a house, he will probably have to put up more of a down payment to make up the difference, real estate agents say.

"Lots and lots of real estate agents are running into these problems," said Kathie Eaton, a Shannon & Luchs Co. agent working in the company's Vienna office. Eaton said that one agent in her office had a case where the appraisal came in $10,000 below the purchase price for a town house in Fairfax. The buyer was unwilling to put more money into the deal and the seller was unwilling to reduce the purchase price, so the deal fell through, Eaton said.

In a typical case, if a purchaser has agreed to pay $130,000 for a house and the lender has agreed to give the buyer a loan that will cover 90 percent of the purchase price -- $117,000 -- the purchaser will have to make a down payment of $13,000.

If the appraiser, however, says the house is worth only $120,000, then the lender will only agree to make a loan that is 90 percent of that, or $108,000. If the seller is unwilling to lower the purchase price, the buyer will then have to make a down payment of $22,000, a total of $9,000 more than originally anticipated.

With buyers competing for houses in the best real estate sales market in seven years, prices are increasing almost week by week, with some buyers offering several thousand dollars more than listed prices to win bidding wars with other potential buyers.

"The definition of market value is what a number of people would be willing to pay for the property," said Judith Reynolds, a principal of the D.C. appraisal firm of Reynolds & Reynolds. "Appraisers are required to look at recorded sales, however, and those are often at least two months old and can lag behind the market substantially."

Appraiser Donald Boucher, president of C. Robert Boucher and Associates, said the problem of appraisals coming in below contract prices has become a "daily occurrence" for his small office of five appraisers.

James E. Savitz, a Maryland real estate lawyer who handles property settlements, calls the issue "a constant problem" in today's housing market.

"The appraisers are using information that is several months old and the market is increasing faster than I've ever seen it," Savitz said. "The appraisals just aren't keeping up."

At the heart of the issue is whether appraisers can, or should, use contracted sales prices to establish market values, or use prices from sales that have gone to settlement. While the contracts may be a better reflection of the current market value in a neighborhood, lenders shy away from them for several reasons.

Lenders, including both mortgage bankers and savings and loans, are increasingly likely to sell their mortgage loans in the secondary mortgage market, where the loans are pooled and securities backed by the pools are sold on Wall Street.

The Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., the two quasi-federal entities that are responsible for a large part of the secondary mortgage-market activity, have regulations that dictate how appraisals must be done, and those regulations make it difficult for appraisers to use contracted sales prices to establish a market value.

"The regulations do not say you can't use contract sales in making an appraisal, but lenders are interpreting the regulations as stricter than they are," Boucher said. "Lenders want to make sure they can sell the loan into the secondary market, and they won't risk an appraisal that might make the loan a problem. They don't want to get stuck holding any of these loans any more."

Lenders said that basing appraisals on contracts can be a risky lending practice.

"Just because a property has a contract on it doesn't necessarily mean the property will close according to the terms of that contract," said Thomas J. Bertke, vice president for First Washington Mortgage. "In the final days before settlement, buyers and sellers often change the terms of the loan, such as who pays discount points or whether furniture might be included in the sale. Until the sale goes to settlement, you can't really establish the true value of the property because you have to take all those things into consideration."

Bertke said that his company has encountered problems with low appraisals but that, overall, such problems are only occurring in about 5 percent of the $235 million worth of mortgages the company is writing each month this spring.

Bertke said, however, that his company and other lenders are asking for more stringent appraisals than they have in the past, mostly due to a crackdown last year by private mortgage insurance companies and secondary mortgage market conduits suffering losses from overinflated appraisals.

The problems that led to the crackdown, however, were largely the result of a period of slow housing appreciation in most markets, the appraisers said, and the tougher appraisal standards are no longer appropriate in the current market.

Getting caught by a low appraisal is not just a trap for home buyers: People refinancing a loan also could get caught if they are hoping to take equity out of the house to finance a new kitchen or large purchase.

Donald May, assistant vice president and manager of the Shannon & Luchs office in Gaithersburg, said that he and his agents look at comparable properties when helping a seller establish a price for a house, and that he will warn the seller about an appraisal problem if the seller insists on pricing his house above the market.