A home appraisal estimates a property’s fair market value to protect lenders from over-lending. If it comes in low, it can derail financing. what a home appraisal actually means Buyers may need to renegotiate, pay the difference in cash, or walk away. Sellers might reduce the price or dispute the appraisal. Reviewing errors, requesting reconsideration, or ordering a second appraisal are key steps. A low appraisal isn’t a deal-breaker—but a signal to strategize.
What Is a Home Appraisal and Why Is It Important?
A home appraisal is an unbiased estimate of a property’s fair market value, prepared by a licensed appraiser. Lenders require it to ensure that the amount they’re loaning doesn’t exceed the actual value of the property.
Why it matters: If the appraisal is lower than the agreed purchase price, lenders won’t finance the full amount—leaving the buyer to cover the difference or renegotiate.
Example:
- Purchase Price: $400,000
- Appraised Value: $370,000
- Loan (assuming 80% LTV):
- Based on $400,000 = $320,000
- Based on $370,000 = $296,000
- Shortfall: $24,000 needs to be resolved
Immediate Effects of a Low Appraisal
Whether you’re the buyer or the seller, a low appraisal throws off your financing plan and puts the deal at risk.
For Buyers:
- Reduced loan amount
- Need for higher down payment
- Risk of losing earnest money (if no appraisal contingency)
For Sellers:
- Must reduce price or risk buyer walking away
- Possible delay in closing
- May need to relist at a lower price
What to Do If the Appraisal Comes in Low
Now, let’s explore your options. Here’s how to respond quickly and strategically to a low appraisal:
1. Review the Appraisal Report for Accuracy
Before you take any drastic steps, go through the report line by line. Common errors include:
- Incorrect square footage
- Missing upgrades or renovations
- Outdated or incomparable sales comps
Action Tip: Work with your real estate agent to identify and document any errors. Even small adjustments can lead to a higher revised value.
2. Request a Reconsideration of Value (ROV)
If you find inaccuracies or stronger comparable sales data, you can file a formal Reconsideration of Value through your lender.
Steps:
- Gather evidence (updated comps, contractor receipts, photos of upgrades)
- Submit to lender
- Appraiser may issue a revised report
3. Negotiate with the Seller (or Buyer)
This is one of the most common and effective strategies. Renegotiation can include:
- Seller lowering the price to match appraisal
- Buyer agreeing to pay the difference in cash
- A combination of both
Example:
- Appraised Value: $370,000
- Offer Price: $400,000
- Seller drops price to $385,000
- Buyer covers $15,000 gap in cash
4. Cover the Appraisal Gap Out of Pocket
If you’re a buyer with available cash and want to avoid renegotiation, you can choose to cover the difference yourself.
Why This Matters:
Lenders will only finance a percentage of the appraised value, not the offer price. To close the gap:
- You need to increase your down payment
- Ensure your Debt-to-Income (DTI) ratio remains within limits
Pro Tip: Use a mortgage affordability calculator to assess how much you can afford in cash before making this decision.
5. Get a Second Appraisal or Switch Lenders
If you believe the appraiser lacked local market knowledge or made critical errors, requesting a second appraisal is an option.
- A new lender may order a fresh appraisal
- This tactic is often used by experienced investors
Be aware: This approach adds time and doesn’t guarantee a higher value. Some lenders may also be unwilling to restart the process.
6. Walk Away from the Deal (If Protected)
If your contract includes an appraisal contingency, you can walk away without financial penalty.
Appraisal Contingency Clause: This protects the buyer if the home appraises for less than the purchase price. Without it, you could lose your earnest money deposit.
7. Make Strategic Improvements (For Sellers)
If you have the flexibility and the deal hasn’t fallen through, you may boost your home’s value with quick, targeted upgrades.
High-impact improvements include:
- Enhancing curb appeal
- Painting interiors
- Updating kitchens and bathrooms
- Fixing issues flagged in the original appraisal
Common Reasons for Low Appraisals
Understanding why appraisals come in low can help prevent issues in future deals:
| Reason | Description |
| Overbidding | In hot markets, buyers bid above asking prices, inflating contract value |
| Lack of recent comps | Few recent sales in the area can lead to conservative valuations |
| Inexperienced appraisers | Appraisers unfamiliar with the neighborhood may undervalue homes |
| Neglected condition | Homes needing repairs often appraise lower |
| Outdated listing price | Sellers may price based on expectations, not data |
Seller vs. Buyer: Comparative Strategy Breakdown
| Perspective | Risk | Recommended Strategy |
| Buyer | Loan shortfall, cash gap | Appeal, renegotiate, walk away |
| Seller | Deal falls apart | Drop price, dispute appraisal, relist |
| Investor | Delayed closing, reduced ROI | Use cash reserves, structure deals with room for gaps |
Final Thoughts:
A low home appraisal isn’t the end of your transaction—it’s an invitation to rethink your strategy.
Whether you’re the buyer negotiating cash differences, the seller adjusting pricing expectations, or the agent helping bridge the gap, knowing your options puts the power back in your hands.
Remember:
- Keep contingencies in place
- Partner with professionals
- Always back your position with data