When the Appraisal Comes in Low: What It Means and What to Do Next

In a real estate deal, the appraisal plays a key role, especially when financing is involved. It’s when the lender hires an appraiser to confirm the home’s market value. Ideally, it matches the agreed price, but sometimes it doesn’t.

A low appraisal can stall a deal or spark tough conversations, but it doesn’t have to end the sale. Let’s break down what happens when an appraisal comes in low, what it means for all parties involved, and what strategies are available to move forward.

What Is a Home Appraisal and Why Does It Matter?

A home appraisal is a professional, third-party assessment of a property's fair market value. Lenders require it to ensure they're not lending more than a home is worth. It protects them from risk and provides a reality check for both the buyer and the seller.

Appraisers consider recent sales of similar homes (comps), the home’s condition, features, upgrades and the overall local market when determining value. The final report outlines a value that the lender uses to guide how much they’re willing to loan.

If the appraised value is equal to or greater than the purchase price, the loan proceeds as planned. But if it’s lower, the lender will only finance up to the appraised amount — leaving a gap that must be addressed.

Why Appraisals Sometimes Come in Low

A low appraisal doesn’t always mean the property is overpriced. It might be a result of:

  • Rapid market changes or rising home values outpacing closed sales data

  • Lack of comparable sales for unique or recently updated homes

  • Overlooked upgrades that weren’t given full value by the appraiser

  • Limited appraiser familiarity with the neighborhood or local market nuances

  • Overzealous offers during bidding wars pushing prices above market norms

Regardless of the cause, a low appraisal creates a discrepancy between the purchase price and the lender’s maximum loan amount.

Options When the Appraisal Comes in Low

1. Renegotiate the Purchase Price

Buyers can ask the seller to lower the price to match the appraisal. In a balanced market or if the seller is motivated, they may agree to the price reduction to keep the deal alive.

2. Pay the Difference in Cash

If the buyer still wants the home at the original contract price, they can pay the difference between the appraised value and purchase price out of pocket. This option requires sufficient liquidity and a strong desire to move forward.

3. Split the Difference

In some cases, buyers and sellers meet in the middle. The seller agrees to reduce the price partially and the buyer covers the rest with additional funds. It’s a fair compromise when both parties want the deal to work.

4. Dispute the Appraisal

Buyers or sellers can challenge the appraisal by submitting a Reconsideration of Value (ROV) request through the lender. This usually includes:

  • A list of better comps the appraiser may have missed

  • Evidence of upgrades or features not properly accounted for

  • Market data supporting the contract price

While not guaranteed, this process can sometimes lead to a revised, higher valuation.

5. Switch Lenders or Order a New Appraisal

In rare cases, the buyer may seek financing from a different lender or request a second appraisal. This option takes time and may incur additional fees, but it can be worthwhile if the original appraisal was flawed.

6. Walk Away (if Contingencies Allow)

If the contract includes an appraisal contingency, the buyer may legally back out without losing their deposit. This is a safeguard that protects the buyer in situations where financing becomes untenable.

How a Low Appraisal Impacts Financing

When the appraised value comes in below the contract price, the lender recalculates the Loan-to-Value (LTV) ratio based on the lower value. For example:

  • Purchase price: $500,000

  • Appraised value: $475,000

  • Buyer down payment: 20% of purchase price = $100,000

In this scenario, the lender will now base the loan on $475,000 — not $500,000 — requiring the buyer to either bring more cash or rework the loan structure.

If the buyer can't or won’t make up the difference and the seller refuses to drop the price, the deal may fall apart unless an alternative solution is reached.

Tips for Avoiding or Handling Low Appraisals

  • For Sellers:

    • Price your home realistically based on recent comps

    • Prepare your home well for the appraiser (clean, staged, upgrades highlighted)

    • Provide a detailed list of upgrades and improvements with costs

    • Make sure your agent is present during the appraisal to provide context

  • For Buyers:

    • Include an appraisal contingency in your offer for protection

    • Work with a lender and agent who communicate well during this process

    • Be financially prepared for a low appraisal, especially in competitive markets

Understanding Your Options When a Home Appraises for Less

A low appraisal isn’t the end of the road — it’s a fork in the path. It requires thoughtful negotiation, flexible financing strategies and clear communication between all parties. Buyers must assess their financial comfort zones, while sellers should weigh their market position and how much they’re willing to compromise.

Understanding your options empowers you to respond strategically rather than react emotionally. Whether it’s renegotiating the price, supplying additional comps or walking away, what matters most is approaching the situation with transparency and a problem-solving mindset.

A trusted real estate agent and lender can guide you through this bump in the road, helping to keep the transaction on track — or pivot wisely when needed.

Stephen Husted