You found the perfect house. The price is agreed upon. You’re picturing where the couch will go. Then the appraisal comes back… and it’s lower than the agreed-upon price. Cue the record scratch. Now what?
A low appraisal can be a deal-breaker—or a deal-maker—depending on how you handle it. Whether you’re the buyer or the seller, here’s what you need to know.
First, What’s an Appraisal and Why Does It Matter?
An appraisal is a professional estimate of a home’s market value, ordered by the lender to make sure they’re not lending more than the home is worth. Lenders want to protect their investment (fair), and they base their loan amount on the appraised value—not the agreed-upon sale price.
If the appraisal matches or exceeds the sale price? Smooth sailing.
If it comes in lower? That’s when things get… interesting.
Why a Low Appraisal Can Be a Big Deal
For buyers:
If the appraisal is lower than your offer, your lender may not give you the full loan amount you expected. You’ll either need to come up with the difference out of pocket or renegotiate the price. That dream home might suddenly feel out of reach.
For sellers:
A low appraisal could mean your buyer can’t secure financing unless you drop the price. You might have to go back to the negotiation table or risk the deal falling through entirely.
So What Are Your Options?
Let’s break it down:
1. Renegotiate the Price
Often the most straightforward solution. Buyer and seller agree to a lower price that matches the appraisal.
- Buyer gets a better deal.
- Seller takes a hit on their expected profit.
2. Buyer Covers the Gap
If the buyer really wants the house, they can pay the difference between the appraised value and the agreed price in cash.
- Deal stays intact.
- Only works if the buyer has extra funds—and is willing to spend them.
3. Meet in the Middle
A compromise: seller reduces the price a bit, and the buyer brings a little extra cash. Everybody sacrifices a little, but the deal survives.
4. Request a Reconsideration of Value
If you (or your real estate agent) believe the appraisal missed key comps or used flawed data, you can challenge it.
- Provide additional comps and data.
- It takes time and doesn’t guarantee a change.
5. Get a Second Appraisal
In some cases, particularly with certain loan types (like VA or FHA), you may be able to request a second appraisal.
- Must be allowed by the lender.
- A gamble—it could come in higher… or not.
6. Cancel the Contract
No one wants this, but sometimes it’s the only option. If buyers and sellers can’t agree, the deal may fall apart.
What Causes a Low Appraisal?
- Rapidly changing markets – Prices might be rising faster than comparable sales can reflect.
- Unique or customized homes – Hard to find direct comps.
- Overzealous pricing – Sometimes sellers list high hoping for a windfall.
- Appraiser unfamiliar with the area – Not all appraisers know the neighborhood nuances.
How to Protect Yourself
Buyers:
- Include an appraisal contingency in your contract. This gives you a way out or leverage to renegotiate.
Sellers:
- Price your home realistically and use a knowledgeable local agent who understands recent comps.
Both parties:
- Work with a real estate agent and lender who can help navigate the appraisal process and advise if challenges arise.
Final Thought
A low appraisal isn’t the end of the world—but it does require swift, informed decisions. Whether you’re buying your dream home or trying to sell your current one, understanding how appraisals work gives you the upper hand when the unexpected happens.
