An appraisal is a report that states the fair market value of a property. It's typically required during a home purchase as a condition for mortgage approval.
If an appraisal comes in low, that means the appraised value is lower than the price the buyer and seller agreed to. Lenders will typically only provide a mortgage up to the appraised value.
When a house appraisal is lower than the offer, the seller and buyer can choose to renegotiate the sale price, the buyer can cover the difference in cash, or the deal may fall through entirely. The consequences of a low appraisal also depend on whether or not the sales contract includes an appraisal contingency.
A realtor can help you understand what happens if the appraisal is lower than the offer and which steps to take next.
If you don't have an agent already, we can help you connect to a top local realtor. They'll guide you through your transaction and help with any issues that arise, such as a low appraisal, so you increase your chances of getting the outcome you want.
What happens if the appraisal is lower than the offer?
Next steps for the buyer
Dispute the appraisal
The buyer is free to challenge an appraisal, especially if they believe the appraiser made an error or overlooked certain home improvements. For example, the appraiser got the square footage wrong or didn’t factor in major repairs, like new plumbing.
During an appraisal dispute, the buyer should provide documentation that addresses what was missing from the original appraisal report. This documentation can include receipts of recent repair work or more recent data from comparable home sales.
Buyers should find a real estate agent who can advise them on what to do if an appraisal comes in low. For example, the buyer's agent can access market data showing how much similar properties have been selling for and can help buyers gather paperwork to submit an appraisal rebuttal.
Order another appraisal
Unfortunately, the appraisal appeal success rate is low. If the dispute doesn’t lead to a satisfactory outcome, the buyer can also request a new appraisal. To do this, the buyer will likely need to pay an additional fee, and they’ll have to get their lender’s approval for a new appraisal.
Buyers who think the original appraiser was inexperienced or was working outside of their normal geographic area may have a stronger case for getting a new appraisal. However, there’s no guarantee that a new appraisal will result in a higher appraised value, so there's some risk in going this route.
The buyer can also ask the seller to extend the closing date by a few months and then get a new appraisal closer to closing. If home prices are generally improving, it’s possible that a new appraisal in a couple of months will be closer to the original agreed-upon sale price.
Negotiate a lower purchase price
The ability to negotiate a lower purchase price after a low home appraisal depends on how motivated the seller is to sell and how much of a gap is between the sale price and the appraised value. For example, if the gap is only $10,000 on a $1 million home, the seller may be open to negotiating in order to close the deal.
However, if the appraisal contingency has already been waived, then sellers are less likely to agree to a lower sale price. The lack of an appraisal contingency is meant to reassure sellers that a deal is less likely to fall through or need to be renegotiated.
That said, the seller may worry that they have overpriced their home and may want to avoid putting it back on the market at a lower price. This knowledge can motivate sellers to renegotiate with the buyer in case of a low appraisal.
Make up the difference in cash
Depending on the buyer’s finances, it may be possible to make up the difference in cash. Doing so ensures that the deal still goes through and the buyer gets financing for the appraised value of the home.
Similarly, the buyer can propose splitting the difference with the seller. By splitting the difference, the buyer doesn’t have to cover the full appraisal gap and the seller avoids losing out on a closing (and also having to potentially relist for less).
Walk away
The buyer can walk away if the appraisal comes in low, but there may be penalties depending on whether or not there’s an appraisal contingency.
If there is an appraisal contingency, there’s generally no risk in walking away.
However, if the buyer doesn’t have an appraisal contingency, they could end up losing their earnest money deposit. On top of that, since they’ll be breaking their contract with the seller, they may be open to legal consequences depending on the specific terms of the contract.
Next steps for the seller
Negotiate with the buyer
If the buyer’s appraisal comes in for less than the sale price, the seller can offer to renegotiate the price. Renegotiating ensures that the house still gets sold and there’s no risk of having to relist the property (potentially at a lower list price).
Renegotiating can be the right choice if the buyer has already disputed the appraisal or even gotten a second one. Since that shows that the house was likely overpriced, it’s often in the seller’s best interests to renegotiate rather than try to find a new buyer who may encounter the same problem of a low appraisal.
Offer to split the difference
A good compromise can be to split the difference between the agreed sale price and the appraised value.
This is an attractive approach to sellers who want to sell quickly and don’t mind taking a bit of a cut on their proceeds from the sale. If the appraisal is accurate, it also means that the seller is potentially still getting more for the home sale than they would if they relisted.
However, for sellers who suspect the appraisal is too low, splitting the difference is not a great outcome financially.
Relist the property
If the seller is confident they can get a better price for their home than the appraised value, it makes sense to relist the property.
This is a good option for sellers who have had their own appraisal done and are confident that the buyer’s appraisal is inaccurate. Sellers are not obligated to accept a buyer’s lowered offer and are free to walk away.
However, relisting the property means the seller has to start the listing process over, which can be frustrating.
If they haven’t already, sellers should have a listing agent help them list and sell the house. A real estate agent can help market the home and find buyers, including potentially cash buyers who won’t require an appraisal.
What does it mean to get a low appraisal?
A low appraisal means that the house appraised for less than the sale price agreed on between the buyer and seller.
A low appraisal can present a problem as it often means the buyer’s lender will be unwilling to provide a mortgage for the full sale price of the home.
The result is that the deal could fall through or the buyer will have to make up the difference in cash. Because of the risk of the deal falling through, a low appraisal has risks for sellers and could result in the sale price being renegotiated.
How often do appraisals come in low?
Appraisals come in low 8.6% of the time.[1] However, starter homes are 3–5% more likely to have an appraisal come in low. This discrepancy reflects the fact that inexperienced first-time home buyers are more likely to offer more for homes than they’re worth. By contrast, only 7.1% of more expensive homes are appraised below the sale price.
Why would an appraisal come in low?
An appraisal can come in low for a variety of reasons. Some low appraisals are due to errors on the appraiser’s part, while others are caused by mistakes made by the buyer or seller. In some cases, low appraisals aren’t necessarily a mistake but just a reflection of a rapidly changing market.
Some reasons for a low appraisal include:
- The buyer offered more than the house is actually worth
- The appraiser used poor data from comparable sales
- Basement renovations added limited value to the property
- The appraiser had to rely on sales data from outside the neighborhood
- A rapidly rising market resulted in appraisals lagging behind current prices
- An inexperienced appraiser undervalued the property
- The buyer deliberately overpaid to secure their dream home
Why does a low appraisal matter?
To the buyer
A low appraisal can be a big issue for the buyer. Lenders typically require appraisals before approving buyers for a mortgage. The lender will usually only provide a mortgage that covers the appraised amount, which can leave the buyer short of the agreed-upon sale price.
A low appraisal doesn’t automatically mean that the sale will fall through. The buyer can still get the mortgage by increasing their down payment amount. But this won’t be possible for all buyers.
For example, say the sale price is $500,000 and the buyer is providing a 10% down payment of $50,000. If the appraised value comes in at $425,000, the buyer can increase their down payment to $75,000, which will be closer to 18%.
After a low appraisal, buyer options will largely depend on whether or not there was an appraisal contingency in the contract. With an appraisal contingency, the buyer is allowed to walk away from the deal if the appraisal comes in low or the seller refuses to renegotiate.
But if there’s no appraisal contingency, the buyer may have to try to get the seller to renegotiate (which the seller may refuse to do). They can also walk away from the deal, but they will lose their earnest money deposit and, depending on the terms of the contract, face legal consequences.
To the seller
Low appraisals matter to the seller because they can delay or even cancel the entire sale. A low appraisal essentially means that the house’s sale price is higher than what it's worth. As a result, the buyer may choose to back out of the deal, often because their lender will only provide a mortgage up to the appraised amount, not the previously agreed-upon sale price.
With a low appraisal, the seller can negotiate with the buyer for an amount closer to the appraised value. Alternatively, the seller can try to find another buyer, but they should be aware that a future deal may also fall through due to a low appraisal unless the seller decides to lower their listing price.
What is an appraisal contingency?
An appraisal contingency allows the buyer to back out of the sale if the appraisal comes in lower than the sale price. The appraisal contingency is technically optional, but it’s usually a good idea to have it since it protects the buyer by ensuring they don’t lose their earnest money deposit.
The appraisal contingency is especially important to have if the buyer needs to qualify for financing. Most lenders require an appraisal before they approve a mortgage. If the appraisal comes in low, the buyer could be left without enough financing to cover the purchase of the property. With an appraisal contingency, this situation still allows the buyer to back out without consequences.
What happens if the buyer has waived the appraisal contingency?
If the buyer waives the appraisal contingency, they have fewer options if they decide to get an appraisal and that appraisal comes in low. The buyer can try to renegotiate the sale price with the seller, but this option can be challenging unless the seller is highly motivated to sell.
Without the appraisal contingency, there are consequences for the buyer if they choose to walk away from the deal because of a low appraisal. By backing out of the sale, buyers will lose their earnest money deposit. Plus, the seller may be able to take legal action against the buyer depending on the terms of the contract.
Why would a buyer waive the appraisal contingency?
A buyer may choose to waive the appraisal contingency for a number of reasons. When buying a house, waiving the contingency can make an offer more attractive to sellers. Without an appraisal, a home sale is much less likely to fall through or have to be renegotiated. Because there’s no need for an appraisal, the entire transaction can also be completed faster.
A buyer can also waive the appraisal contingency if they’re paying all cash. Since appraisals are often required by mortgage lenders, buyers who don’t need financing technically don’t need an appraisal. However, buyers can still choose to have their own appraisal done to make sure they’re making a good investment.
FAQ
Is a low appraisal good for the buyer?
Generally, a low appraisal is not good for the buyer. If the appraisal comes in lower than your offer, you may not get approved for financing. The one good side of a low appraisal is that you may be able to renegotiate a lower sale price with the seller.
What happens if an appraisal comes in low?
If an appraisal comes in low, the buyer’s lender will likely not approve their mortgage for the full sale price. At that point, the buyer and seller can renegotiate for a lower sale price or they can walk away from the deal outright.
What happens if the appraisal is 30k lower than the offer?
If the appraisal is $30,000 lower than the offer, the lender will likely only provide the buyer with a mortgage up to the appraised amount. The buyer and seller can renegotiate the price, one or both parties can cover the difference, or the buyer can walk away (but they may lose their deposit if they don’t have an appraisal contingency).
How often do FHA appraisals come in low?
Appraisals come in low less than 9% of the time, on average. Since FHA appraisals are conducted by third parties, they’re no different from appraisals for traditional home sales. As a result, FHA appraisals shouldn’t come in lower more often than other types of appraisals.
How do you negotiate with the seller after a low appraisal?
If the seller is motivated to sell, they may agree to negotiate the sale price, especially if they want to avoid relisting the home for less. The buyer can also propose splitting the difference between the sale price and the appraised value or ask to extend the closing date in the hope that the appraised value will rise in the near future.
Can you contest an appraisal?
Yes, you’re allowed to contest an appraisal if you believe the appraiser made an error or overlooked an important element of the property. When contesting an appraisal, you should provide evidence that the appraised value should be higher, such as receipts of recent home improvements that likely increased the home’s value.
How long does it take to dispute an appraisal?
It can take anywhere from a few days to a couple of weeks to dispute an appraisal. To help make the process go faster, you should provide the appraiser with documentation that you believe shows why the appraised value should be higher. A real estate agent can help send documentation to assist with your dispute.
How often do appraisals get changed?
It’s rare for appraisals to get changed as a result of a dispute, especially for large amounts. However, appealing an appraisal can work, especially if there’s a major item that the appraiser may have missed. You’ll typically need your lender’s permission to appeal.
