What if the appraisal is lower than the offer?

Buying a home can feel like an emotional rollercoaster, and few moments hit harder than learning that the value of your appraisal is lower than the offer. It’s frustrating and sometimes confusing — but not uncommon. 

The upside? A low appraisal doesn’t have to stop you from buying the home you love. Understanding your options ahead of time makes it easier to stay level-headed and make smart decisions if and when challenges arise, whether you're a first-time home buyer or you’ve been through the mortgage process before.

What does a low appraisal mean?

A low home appraisal happens when a professional appraiser determines that a property's fair market value (FMV) is lower than the agreed-upon purchase price. To calculate the FMV, appraisers review recent sales of similar properties, assess the home's condition, and consider current local market trends. When the appraisal report is below your offer, it creates an appraisal gap.

Low appraisals can happen for various reasons, but they don't necessarily mean the buyer overpaid or made a mistake. Sometimes, bidding wars and fast-moving market shifts outpace sales data, or a home’s unique features make it difficult to find direct comparable properties to support the price. In any case, the lender relies on the appraisal to protect their loan investment, ensuring they don't approve a mortgage for more money than the property is worth.

What happens if the appraisal is lower than the offer?

When an appraisal is less than your offer price, your mortgage lender may not approve a loan for the full purchase price. Most lenders only finance up to the appraised value, which means the buyer must cover the difference between the appraised value and the agreed sales price. 

For example, if you offered $300,000 but the appraiser values the home at $285,000, you'd need to contribute an additional $15,000 in cash or find another solution. This appraisal gap creates a problem that needs immediate attention because your mortgage approval depends on it. 

Most purchase contracts include an appraisal contingency that gives you the right to walk away if the appraisal is too low. But many buyers prefer to keep the deal alive and figure out a way to move forward with the purchase.

Depending on your contract terms, you might have only a few days to respond. During that time, you can explore different financing options, negotiate with the seller to lower the price, or renegotiate other parts of the deal, like asking the seller to cover a portion of the closing costs, for example. The key is to act quickly and keep all parties, including your real estate agent, lender, and the seller, updated on your next steps.

Why would an appraisal come in low?

Several factors can contribute to low appraisals, and understanding them helps you better prepare for the possibility:

— Market conditions: Housing markets often move fast, which means recent sales data might not reflect current price trends, leaving appraisers with outdated data.

— Overpriced property: A seller might list the home above market value, hoping to capitalize on high demand or emotional bidding.

— Limited comparable sales: Unique properties or those in areas with few recent sales can be difficult to appraise accurately.

— Property condition issues: Problems discovered during the appraisal, such as needed repairs, deferred maintenance, or outdated systems, can lower the appraised value.

— Appraiser error: Appraisers are human and can sometimes miss important details or miscalculate figures in the appraisal report.

— Conservative valuations: Some appraisers take a cautious approach, especially in uncertain or volatile real estate markets.

What to do when an appraisal comes in low

When a home appraisal is less than the agreed purchase price, you have several options to consider. Each comes with different costs and risks, so evaluate them carefully based on your financial situation and how much you want the home.

Pay the difference in cash

The most straightforward solution is to pay the appraisal gap out of pocket. If you have savings beyond your down payment and closing costs, you can cover the difference and proceed with your original loan amount. 

Before choosing this option, make sure you'll still have adequate emergency funds after closing. Calculate the total additional cost, including the gap amount plus any impact it could have on your mortgage terms. Paying extra upfront also means you’ll have less cash for moving expenses, immediate repairs, or furnishing your new home.

Request a second appraisal

You can challenge the original appraisal report by requesting a second opinion from a different appraiser. First, review the initial report for errors, overlooked upgrades, or poor comparable property selections. If you find legitimate concerns, present them to your lender with supporting documentation, like recent sales data, photos, or receipts for improvements.

Remember that a second appraisal costs additional money and time, and there's no guarantee it will return a higher appraised value. Many lenders will only approve another home appraisal if you can clearly demonstrate mistakes in the first one.

Negotiate with the seller

Many sellers are open to negotiating when faced with a low appraisal, especially if they're motivated to close quickly. You can ask the seller to reduce the purchase price to match the appraised value, split the difference, or offer concessions to help offset your additional costs.

Approach these negotiations professionally and present the appraisal report as a reflection of current market conditions, not a criticism of their pricing. Sellers on tight timelines or who have already purchased another property may be more flexible than those sitting on multiple backup offers.

Walk away from the deal

If the appraisal gap is too large to bridge financially, or negotiations with the seller fall through, you can use the appraisal contingency in your contract to exit the deal. Most purchase agreements allow buyers to cancel without penalty if the appraisal comes in below the agreed sales price, typically allowing you to recover your money in the process.

Walking away can be disappointing, but sometimes it’s the smarter move, especially if the alternatives would strain your budget or deplete your savings. Remember that other opportunities will come along, and waiting is usually better than overextending yourself financially.

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How to prevent a low appraisal

When you’re buying a home, a low appraisal can derail your financing or force you back to the negotiating table. While you can't control the appraiser’s final opinion, you can make sure the seller and their agent have all the information they need to support the value of the home.

Present strong comparable sales

Research recent home sales in the area and create a list of strong comparables that support your purchase price. Look for properties sold within the last three to six months that are similar in size, age, condition, and location. Share this information with your real estate agent, who can provide it to the appraiser during their visit.

Focus on closed sale prices rather than active listings, as they reflect what buyers have actually paid. Include details about any unique features or upgrades that justify a higher appraisal value compared to similar properties.

Request receipts for improvements

Ask the seller for proof of any recent upgrades, such as receipts, permits, and before-and-after photos, and have the documentation ready for the appraiser. Major renovations like kitchen remodels, updated bathrooms, new flooring, and HVAC replacements can add significant value that the appraisal report should reflect.

Ensure the home shows well

While cleaning and staging are ultimately the seller’s responsibility, you can request that the home be in its best condition to help the appraiser see its best features. Even small improvements like fresh paint, landscaping, and minor repairs can positively influence the appraiser's perception.

Be present during the appraisal

While you shouldn't interfere with the appraiser's work, attending the appraisal appointment can help. It gives you a chance to point out upgrades, explain unique features, or mention neighborhood amenities that might not be immediately obvious. This context helps them produce a more accurate appraisal report.

Navigate low appraisals like a pro

A low home appraisal doesn't have to derail your homebuying dreams. By understanding your options and acting quickly, you can often find a solution that allows you to move forward with your purchase. Whether you negotiate with the seller, pay the appraisal gap out of pocket, or walk away to find a better deal, having a clear plan helps you make confident decisions.

When you're ready to start your home search, Better's streamlined mortgage process makes getting pre-approved fast and simple. Our digital platform connects you with competitive loan options, while our experienced team guides you through every step of financing and helps you prepare for any challenges, like a low home appraisal, with confidence.

Start your pre-approval process with Better today to see what you can afford, and take the first step toward homeownership.

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FAQ

What happens if the appraisal is lower than the offer?

When a home appraisal comes in below your offer price, your lender will only approve financing up to the appraised value, creating a gap you'll need to address. Buyers usually have several days to respond by either paying the difference in cash, negotiating with the seller to reduce the price, requesting a second appraisal, or using their appraisal contingency to exit the contract.

How often do home appraisals come in low?

Low appraisals occur in roughly 8–10% of home sales, though the rate varies with housing market conditions and price ranges. In hot markets with bidding wars and rapid price increases, low appraised values are more common because recent home sales data lags behind current market activity.

Is waiving the appraisal contingency a good idea?

Waiving the appraisal contingency can make your offer more attractive to sellers, especially in competitive markets. But doing so removes your protection if the appraisal comes in low. Only consider waiving it if you're prepared to pay any appraisal gap in cash or you’re confident in your purchase price based on thorough market research.

How much does an appraisal cost?

Home appraisals typically cost between $300 and $600, depending on the property’s size and location. The buyer usually pays the appraisal fee as part of their closing costs, and it’s often included in your mortgage lender’s initial loan estimate.