When the appraisal comes in lower than expected, it can jeopardize financing, as lenders base loans on the appraised value, not the sale price. Buyers may need to renegotiate what happens when the appraisal comes in lower than expected. This guide explains why low appraisals happen, what they mean for buyers and sellers, and outlines practical solutions—ensuring you’re prepared to navigate the appraisal process confidently.
What Is a Home Appraisal?
A home appraisal is a professional, unbiased estimate of a home’s fair market value. It’s usually ordered by a lender during the mortgage approval process to ensure that the home is worth the amount the buyer is paying—and more importantly, what the lender is being asked to finance.
Why it matters:
- Lenders base loan amounts on the lower of the purchase price or appraised value.
- If the appraisal comes in lower than the agreed purchase price, the lender won’t cover the full loan amount originally planned.
Example:
You agree to buy a home for $450,000.
The appraisal comes back at $420,000.
The lender will now base the mortgage on $420,000, not $450,000.
Appraisal gap: $30,000
Why Do Appraisals Come in Low?
It’s more common than you’d think, especially in a hot market or a bidding war.
Here are the top reasons appraisals come in lower than expected:
- Overbidding in a competitive market – Buyers may offer more than market value to win a home.
- Lack of comparable sales (comps) – If similar homes haven’t sold recently, the appraiser has limited data.
- Home condition issues – Deferred maintenance, outdated features, or poor curb appeal can reduce value.
- Fast-changing market – In rapidly appreciating neighborhoods, past sales may not reflect current value.
- Incorrect or outdated appraisal methods – Mistakes in square footage or comp selection can skew the outcome.
What Happens After a Low Appraisal?
The lender will only finance a percentage of the appraised value, not the agreed-upon sale price. That means:
- The buyer must cover the appraisal gap in cash.
- Or the seller must agree to lower the price.
- Or the deal may fall apart if neither party is willing to compromise.
Let’s look at how this plays out in numbers.
Real-Life Breakdown:
Scenario |
Sale Price |
Appraisal Value |
80% Loan Based On |
Down Payment |
Cash Needed |
| Appraisal meets offer | $450,000 | $450,000 | $360,000 | $90,000 | $90,000 |
| Appraisal comes in low | $450,000 | $420,000 | $336,000 | $90,000 | $114,000 |
Appraisal Gap: $30,000 — buyer must bring this to the table unless the price is renegotiated.
6 Options When the Appraisal Is Low
1. Renegotiate the Sale Price
The buyer can ask the seller to reduce the purchase price to match the appraised value.
- Pro: No extra out-of-pocket costs for the buyer.
- Con: The seller may refuse, especially in a hot market.
2. Split the Appraisal Gap
Buyer and seller meet in the middle. For example:
- Sale price: $450,000
- Appraisal: $420,000
- New agreement: $435,000
- Buyer brings $15,000 extra cash; seller drops $15,000 off the price
Works well in cooperative deals where both sides want to close.
3. Buyer Covers the Gap in Cash
Buyers can choose to pay the difference between the appraised value and purchase price.
- Best for well-qualified buyers with liquid cash reserves
- Useful when the buyer really wants the home or the market is ultra-competitive
Use a mortgage affordability calculator to plan ahead.
4. Challenge the Appraisal
If the appraisal seems off-base, the buyer can request a reconsideration of value (ROV) or a second appraisal.
To do this:
- Review the appraisal for errors (incorrect square footage, missing features, outdated comps)
- Provide updated or more relevant comparables
- Ask your lender to submit these findings
5. Cancel the Contract (With a Contingency)
If the purchase agreement includes an appraisal contingency, the buyer can walk away without losing their earnest money.
6. Switch Lenders
In rare cases, switching to a new lender may allow for a new appraiser and potentially a new (and better) valuation. However, it can delay closing and doesn’t guarantee a higher value.
How Buyers, Sellers & Agents Should Respond
Buyers: What You Should Do
- ✔️ Have a cash buffer for unexpected appraisal gaps
- ✔️ Include appraisal contingencies when possible
- ✔️ Be cautious about bidding far above asking price
Sellers: How to Stay Ahead
- ✔️ Price your home based on recent sales, not emotion
- ✔️ Consider a pre-listing appraisal to avoid surprises
- ✔️ Be ready to provide evidence of upgrades and comps
Agents: Supporting Your Clients
- ✔️ Prepare buyers for the possibility of a low appraisal
- ✔️ Advise sellers on pricing strategy
- ✔️ Assist in gathering comps and negotiating fairly
Comparative Market Data
Let’s say the average appraisal discrepancy in hot markets is 3–8% below the agreed sale price. In a $500,000 market:
- 3% gap = $15,000
- 5% gap = $25,000
- 8% gap = $40,000
Understanding this range helps both buyers and sellers prepare for potential shortfalls.
FAQs
Can I back out of a deal if the appraisal is low?
Yes—if you have an appraisal contingency in your contract.
Does a low appraisal hurt the seller?
It can, if they must lower the price or risk losing the deal.
Can a low appraisal affect my mortgage?
Definitely. It reduces the amount your lender will approve, which may increase your required down payment.
Final Thoughts:
A low appraisal is a bump—not a block—in the homebuying road.
Buyers, sellers, and agents alike can respond strategically. Whether it’s renegotiating the price, splitting the gap, or reassessing the deal, there’s almost always a path forward.
Key Takeaways:
- Appraisals protect lenders—but also provide clarity to buyers
- Know your options if the value comes in short
- Work with trusted professionals to guide your decisions