When a home appraises below the contract price, it creates an appraisal gap. In a financed sale, that matters because the buyer’s lender will generally base the loan amount on the appraised value, not the higher agreed price.
For sellers, a low appraisal does not automatically mean the deal is dead. It usually means the buyer, seller, and lender need to decide what happens next: challenge the appraisal if it appears to miss important facts, have the buyer cover some or all of the gap, renegotiate the price, or walk away if the contract allows it.
Sometimes the contract price was simply too ambitious. Other times, the appraisal may have overlooked better comparable sales, upgrades, or local market details. This article focuses mainly on what sellers can do next, while also explaining the buyer’s and lender’s roles in keeping the transaction together.
An appraiser will assign your home’s value based on comparable properties and recent sale prices. However, some homes — notably those in foreclosure, sold via short sale, or which were abandoned — sell at a discount as compared to non-distressed properties. An appraiser may want to ignore these types of comparable homes, or make proper valuation adjustments.
The housing market can improve quickly in some U.S. markets. Appraisers, though, may not consider a local market’s demand and its rapidly rising prices. If an appraiser is not taking into account such information as multiple offer situations, low local inventory, and days on market, your home’s appraised valuation may be affected.
Appraisers operate under strict time guidelines. When an appraisal takes more time than usual, it’s often the result of the appraiser’s uncertainty about the home’s value. This is a common scenario for unique homes for which comparable properties are scarce. It can also be the case when an appraiser is unfamiliar with your area. If an appraisal takes an inordinate amount of time to complete, consider asking your REALTOR® to review the figures.
To err is human, and appraisers make mistakes occasionally. How you handle those mistakes as a seller can be the difference between a sold home and a canceled contract.
So, what can you, as a homeowner, do if your home does not appraise at the purchase price?
If you believe the appraisal missed important facts, the practical path is usually not to order your own replacement appraisal and expect the lender to use it. In most financed transactions, any challenge to the value has to go through the buyer’s lender, typically as a reconsideration of value.
Start by identifying factual errors or weak support in the report. That might include incorrect square footage, missed upgrades, unsuitable comparable sales, or comparable properties that do not reflect the home’s actual condition or market. Then gather stronger evidence, such as better recent comparable sales or documentation of improvements that may have been overlooked.
Because borrowers generally cannot submit reconsideration requests directly to the appraiser or appraisal management company, sellers usually need to work through the buyer’s side. In practice, that often means giving the buyer’s agent and lender the information needed to review the appraisal and decide whether a formal challenge is appropriate.
A reconsideration of value may help when there are clear factual mistakes or stronger comparable sales that were not considered. A second appraisal may or may not be possible, depending on the loan, the lender’s policies, and the reason for the dispute. In other words, disputing a low appraisal is usually a structured lender process, not simply a matter of paying for another opinion independently.
If the buyer is truly in love with the home, you may be so inclined to ask the buyer if they would be willing to make up the difference between what their lender is willing to loan them and the purchase price of the home. In this case, the buyer would need to have enough money left over to cover the difference.
Of course, the buyer will need to feel confident that there is indeed value in the home, no matter what the appraisal says. As long as the buyer is able to beef up their down payment, the lender should be satisfied.
If both you and the buyer still want to carry out the deal despite the low appraisal, you may want to consider splitting the difference. You could lower the price of the home slightly, and the buyer could meet you in the middle by adding a bit more to the down payment.
If you’re OK with the lower amount that the appraisal came back with, you could let your home go for that amount. While this is not ideal, it would be the quickest way to bounce back from a low appraisal and still sell your home in a timely manner. This would only be an option if you’re OK with the lower price and if you’re in a bit of a rush to sell your property.
If the buyer is not willing to put any more money into the deal and you’re not willing to let the place go for less than what you agreed to sell it for, you may want to put the home back on the market and seek out a buyer who’s fine with putting in a little more in the pot.
You’d be taking some chances here and would have to go through the marketing process all over again. Plus, this would take up more time, so you’ll need to be sure that you have the extra time to take this route.
Are you curious about mortgages, or are you ready to apply for one to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.
A low appraisal creates an appraisal gap between the contract price and the appraised value. In a financed sale, the lender will generally base the loan amount on the appraised value, not the higher agreed price. The buyer, seller, and lender then need to decide whether to challenge the appraisal, have the buyer cover some or all of the gap, renegotiate the price, or end the deal if the contract allows it.
No. A low appraisal does not automatically mean the deal is dead. Many transactions still move forward if the parties can agree on a solution such as a reconsideration of value, a larger buyer down payment, a price reduction, or splitting the difference.
Yes, but the challenge usually needs to go through the buyer’s lender as a reconsideration of value. Sellers can help by identifying factual errors, missed upgrades, weak comparable sales, or stronger recent comparable sales that better support the price.
Sometimes, but it is not simply a matter of ordering another appraisal independently and expecting the lender to use it. In most financed transactions, whether a second appraisal is possible depends on the loan type, the lender’s policies, and the reason for the dispute.
There is no automatic rule that one side must pay the full difference. The buyer may bring in more cash, the seller may lower the price, or both sides may agree to split the gap. What happens depends on the buyer’s finances, the contract terms, and how motivated both sides are to keep the deal together.
Yes. A buyer can still get the home if they have enough funds to cover some or all of the appraisal gap, or if the seller agrees to reduce the price. As long as the lender’s requirements are met, the transaction may still close.
Possibly. Whether the buyer can walk away without penalty depends on the contract terms, including any appraisal contingency or financing protections. If the contract allows it and the parties cannot agree on a solution, the transaction may be canceled.
A low appraisal can happen when the report relies on weak or distressed comparable sales, overlooks important upgrades, uses incorrect property details such as square footage, or does not fully reflect current local market conditions like low inventory, multiple offers, or quickly rising prices.
Not always, but low appraisals do happen, especially in fast-moving markets or with unique homes that have limited comparable sales. They can also occur when an appraiser is less familiar with the area or has difficulty supporting the contract price with recent sales data.
The first step is to review the appraisal carefully for factual mistakes, missed improvements, or poor comparable sales. After that, the seller can work through the buyer’s side and the lender to see whether a reconsideration of value makes sense, while also evaluating whether the buyer can cover the gap or whether a price change is needed.
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