Buying a home is an exciting and often emotional process. After weeks or even months of searching, negotiating, and preparing, you’re finally under contract. Then, just as you’re getting closer to closing, the lender’s appraisal comes in—and it’s lower than your agreed purchase price.
A low appraisal can feel like a punch to the gut. It can throw financing into question, disrupt timelines, and force last-minute negotiations. But before you panic, take a deep breath. This is a common hurdle in real estate, and there are multiple ways to handle it.
Why Do Home Appraisals Come in Low?
A home appraisal is conducted by a licensed appraiser to determine the property’s fair market value. Lenders require this step to ensure they aren’t financing a home for more than it’s worth.
So why does an appraisal sometimes come in lower than expected?
- Market Fluctuations – If home prices in the area have been rising quickly, appraisers may not have enough recent comparable sales to support the higher contract price.
- Lack of Comparable Sales – In areas with few recent transactions, appraisers struggle to find similar homes to compare, which can lead to a more conservative valuation.
- Unique or Over-Improved Homes – If a home has custom upgrades or features that aren’t common in the neighborhood, the appraiser may have difficulty finding comparable properties, leading to a lower value.
- Changing Market Conditions – Economic shifts, interest rate changes, or even seasonal fluctuations can impact home values between the time an offer is made and the appraisal is completed
How a Low Appraisal Affects Buyers
A low appraisal creates a gap between what the lender is willing to finance and the agreed-upon purchase price. Since lenders base their loan amount on the appraised value, this shortfall means:
- You may need to cover the difference in cash, which could stretch your budget.
- The seller may need to lower the price to keep the deal intact.
- The contract could become a standoff, forcing both parties to renegotiate or walk away.
This can be frustrating, but it doesn’t mean the deal is doomed. Buyers have several options to navigate this situation.
What Can You Do If Your Appraisal Comes in Low?
If your appraisal doesn’t match the contract price, you have choices. The best option depends on your financial situation and the seller’s flexibility.
- Renegotiate the Purchase Price – Many sellers will lower the price to align with the appraisal rather than risk losing the sale. This is the most common solution, especially if the appraisal is only slightly lower than the contract price.
- Make Up the Difference in Cash – If you have the financial flexibility, you can pay the difference between the appraised value and the purchase price out of pocket. While this requires more upfront cash, it could be worth it if you’re committed to the home.
- Challenge the Appraisal – Mistakes happen. If the appraisal contains errors or fails to include relevant comparable sales, your real estate agent can submit a reconsideration request to the lender. This doesn’t always lead to a change, but if a legitimate mistake is made, the lender may revise the valuation.
- Request a Second Appraisal – In some cases, you may be able to order a second appraisal—especially if you have concerns about the first appraiser’s methodology. However, not all lenders allow this, and you’ll typically need a solid reason for requesting it.
- Explore Different Loan Options – Certain loan programs, like FHA or VA loans, have different appraisal guidelines. Switching to a different loan type might result in a more favorable valuation, though this depends on lender flexibility and whether you qualify.
- Walk Away (If You Have an Appraisal Contingency) – If negotiations fail and you have an appraisal contingency in your contract, you may have the right to cancel the deal without losing your earnest money deposit. This is a last resort, but sometimes, walking away is the smartest financial decision.
How to Reduce the Risk of a Low Appraisal
While you can’t control the appraisal process, you can take steps to reduce the likelihood of an issue arising:
- Work with an experienced real estate agent who understands local pricing trends and can guide you toward a fair offer.
- Check comparable sales before making an offer to ensure the home’s price is in line with market values.
- Use a knowledgeable lender who is familiar with your area and can help you navigate potential appraisal challenges.
By taking these precautions, you increase your chances of a smoother transaction with fewer surprises.
Final Thoughts
A low appraisal can feel like a major setback, but it doesn’t have to derail your home purchase. With the right approach—whether that means negotiating, covering the difference, or challenging the appraisal—you can still move forward and secure your dream home.
If you find yourself in this situation, lean on your real estate agent and lender for guidance. They’ve seen it all before and can help you explore your options. Buying a home comes with its fair share of obstacles, but with the right mindset and team, you can overcome them and make homeownership a reality.
Now, take a deep breath—you’ve got this!
