What Happens If Your Home Appraisal Comes in Low?

A low appraisal is not uncommon, especially in competitive markets where buyers are willing to pay more than recent comparable sales suggest. If the appraisal comes in lower than the contract price, the sale does not automatically fall apart, but the buyer and seller may need to renegotiate how the transaction will move forward, depending on contract contingencies.

When the Appraisal Happens During a Home Sale

If the buyer is using a loan, the lender orders an appraisal after a purchase contract has been signed to confirm that the home is worth the purchase price before approving the loan. When a home appraises for less than the agreed-upon purchase price, it creates a financing gap.

For example:

• Contract price: $500,000
• Appraised value: $480,000

The lender will base the loan on the appraised value, not the contract price. That means the buyer may need to bring additional cash to closing, or the buyer and seller may need to renegotiate the price so the loan can be approved.

What Are Financing and Appraisal Contingencies?

In some contracts, buyers agree to cover a certain amount of an appraisal shortfall, sometimes called an appraisal gap. For example, if a buyer agrees to cover up to $15,000 and the appraisal comes in $10,000 low, the contingency would not be triggered. But if the appraisal comes in $20,000 below the contract price, the buyer may have the option to renegotiate or cancel the contract.

A low appraisal could also trigger a financing contingency, where the buyer can back out if the lender will not approve the loan at the contract price.

So even if there is no appraisal contingency, the buyer might still be able to cancel using the financing contingency, depending on how the contract is written.

Why Homes Sometimes Appraise Lower Than the Sale Price

In many cases, a lower appraised value has more to do with how appraisals work than with the condition of the home. Appraisals are based primarily on recent comparable sales, not on how much a buyer wants the home or how competitive the market is at that moment. Some common reasons for low appraisals include:

• The market is rising quickly and recent sales have not caught up yet
• There are limited comparable sales in the neighborhood
• The home has unique features that are difficult to compare
• Multiple buyers were interested and the price was pushed up
• The appraiser used different comparable sales than expected
• Recent nearby sales were lower due to condition or timing
• The home was priced higher than typical homes in the area

What Sellers Can Do If the Appraisal Comes in Low

Ask the buyer to bring additional cash: If the buyer has enough cash available, they may choose to cover the difference between the appraised value and the contract price. If the buyer waived both the appraisal contingency and the financing contingency, then bringing additional cash is essentially the buyer’s only way to fulfill the purchase contract. Lower the price to the appraised value: If the contract has an appraisal and/or financing contingency, this is the simplest solution and often keeps the deal moving forward.Meet in the middle: After a low appraisal, the buyer and seller often renegotiate the price. Sometimes the seller lowers the price slightly and the buyer brings additional cash to closing so both sides share the difference and the sale can move forward.Challenge the appraisal: If the appraisal appears inaccurate or missed better comparable sales, the buyer’s lender may allow a reconsideration of value. In practice, it is usually the seller and the listing agent who provide the information used to challenge the appraisal. Cancel the contract: If the buyer cannot secure financing or come up with the needed cash to cover the difference, and the contract allows it, the deal may be canceled and the home returned to the market.Move to another buyer or backup offer: If there were other interested buyers, the seller may be able to move forward with another offer.How Sellers Can Reduce the Risk of Low Appraisals

While no one can completely control the appraisal process, there are a few things sellers and agents can do to reduce the risk of appraisal issues:

• Pricing the home based on strong comparable sales
• Keeping records of upgrades and improvements
• Providing comparable sales to the appraiser
• Making sure the home is clean and presentable for the appraisal visit
• Reviewing the strength of the buyer’s financing and down payment
• Considering backup buyers in case the first deal does not work out

Having Your Home Appraise for Less Than the Sale Price Is Not Necessarily a Bad Thing

A low appraisal often happens because buyers were willing to compete and pay more for a home than other recent sales in the area. Creating that kind of demand does not happen by chance.

The 72SOLD process is designed to position homes to attract strong interest, serious buyers, and competitive offers. If you are considering selling your home, fill out the form on our website to get our price on your home and learn how our strategy works.