What Happens When Your Home Doesn't Appraise?

You found the buyer, accepted an offer, and started moving toward closing. Then the appraisal comes back lower than the agreed upon purchase price.

Now what?

A low appraisal can feel like a major roadblock, but it does not automatically mean the sale is going to fall apart. There are several ways buyers and sellers can respond, depending on the circumstances, the financing involved, and the terms of the purchase agreement.

Here is what happens when a home does not appraise and what buyers and sellers should know.

First, What Does It Mean When a Home Doesn’t Appraise?

When a buyer is using a mortgage to purchase a home, their lender will typically order an appraisal to determine the property's market value.

The appraiser looks at factors such as:

• Recent comparable home sales
• Location
• Square footage
• Condition of the home
• Improvements and upgrades
• Lot size and characteristics
• Overall market conditions

The appraiser then provides an opinion of the home's market value.

For example, imagine a home is under contract for $800,000, but the appraisal comes in at $775,000.

That creates a $25,000 gap between the purchase price and the appraised value.

This does not necessarily mean the home is overpriced. It simply means the appraiser's opinion of value came in below the agreed upon purchase price.

Why Does the Appraisal Matter?

The appraisal is primarily designed to protect the lender.

A lender wants to make sure the property securing the loan is worth enough to support the amount they are lending.

If a buyer agrees to pay $800,000 but the home appraises for $775,000, the lender may base the loan amount on the lower value.

This is where the appraisal gap becomes important.

What Happens After a Low Appraisal?

There are several possible outcomes, and the right solution depends on the specific transaction.

The Buyer Pays the Difference

One option is for the buyer to bring additional funds to closing to cover some or all of the difference.

Using our example, if the home is under contract for $800,000 and appraises for $775,000, the buyer may choose to bring an additional $25,000 to the transaction.

Whether the buyer is able and willing to do this depends on their financial situation and the terms of their loan.

The Seller Lowers the Price

Another possibility is that the seller agrees to reduce the purchase price to match the appraised value.

In the example above, the seller could agree to reduce the price from $800,000 to $775,000.

Of course, a seller is not automatically required to lower the price simply because the appraisal came in low.

The Buyer and Seller Meet Somewhere in the Middle

Sometimes the solution is a compromise.

The seller may agree to reduce the price by a portion of the appraisal gap while the buyer contributes the remaining amount.

For example, the seller could reduce the price by $10,000 and the buyer could bring an additional $15,000 to closing.

The specific terms would need to be negotiated and documented appropriately.

The Buyer Challenges the Appraisal

If there are concerns about the appraisal, the buyer's lender may have a process for requesting a reconsideration of value.

This could involve providing additional comparable sales or information about the property that the appraiser may not have considered.

A strong real estate agent can help identify information that may be relevant to the conversation, while the lender and appraiser determine how the reconsideration process works.

The Buyer May Walk Away

Depending on the terms of the purchase and sale agreement and any applicable contingencies, a low appraisal may give the buyer certain options.

This is one reason appraisal contingencies and financing terms are so important when reviewing an offer.

The exact rights and obligations of the buyer and seller depend on the specific contract, so this is an area where buyers and sellers should work closely with their real estate broker and other appropriate professionals.

Does a Low Appraisal Mean the Home Is Worth Less?

Not necessarily.

An appraisal is an opinion of market value based on the information and comparable sales available to the appraiser.

Real estate value is not an exact science.

Two qualified professionals can sometimes look at the same property and arrive at different opinions of value. Market conditions can also move quickly, particularly when home prices are changing faster than comparable sales can reflect.

This is why a low appraisal does not automatically mean the seller dramatically overestimated the value of the home.

What Can Sellers Do to Prepare for an Appraisal?

While sellers cannot control the final appraisal value, preparation can help make sure the appraiser has accurate information about the property.

Before the appraisal, your real estate agent may help compile information about:

• Recent improvements and renovations
• Upgrades and features that add value
• Permits and completed work
• Relevant comparable sales
• Unique property features
• Recent market activity

It is also important that the appraiser has accurate information about the home.

The goal is not to influence the appraiser's opinion. The goal is to make sure they have the information needed to accurately evaluate the property.

What Can Buyers Do?

If you are buying a home and your appraisal comes in low, try not to panic.

Start by talking with your lender and real estate agent. Your lender can explain how the appraisal affects your financing, while your real estate agent can help you understand your options within the purchase agreement.

From there, you can evaluate whether it makes sense to:

• Bring additional cash to closing
• Request a reconsideration of value
• Renegotiate the purchase price
• Meet somewhere in the middle with the seller
• Explore other financing options
• Determine whether the transaction still makes financial sense

Every situation is different.

The Bottom Line

A low appraisal can certainly complicate a real estate transaction, but it does not automatically end the deal.

There are often several paths forward, and the best solution depends on the buyer's financing, the seller's position, the strength of the market, and the terms of the purchase agreement.

The most important thing is to stay calm, understand the numbers, and have the right professionals helping you navigate the next step.

Buying or selling a home is about more than getting from contract to closing. It is about knowing what could happen along the way and having a plan when something unexpected comes up.

If you are thinking about buying or selling a home in Gig Harbor, Fox Island, or the surrounding South Sound area, having a local real estate professional in your corner can make all the difference.

Lindsay Jackman

Lindsay Jackman | Realtor

Real Broker LLC
📞: 253 266 1067
📧: lindsay@lindsayjackman.com