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A low appraisal occurs when the appraised value comes in below the contract price or expected value. This creates challenges for buyers, sellers, and refinancing homeowners. Understanding options helps all parties navigate this common situation.

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Why Appraisals Come in Low

  • Rapidly rising prices outpace comparable sales data
  • Recent sales don’t reflect current market
  • Multiple offer situations push prices above market
  • Seasonal fluctuations
  • Limited comparable sales available
  • Best comparables are older sales
  • Comparables from different neighborhoods
  • Foreclosures or distressed sales in data
  • Condition issues appraiser noted
  • Over-improvement for neighborhood
  • Unique features difficult to value
  • Deferred maintenance
  • Functional obsolescence
  • Property priced above market
  • Emotional bidding pushed price too high
  • Seller unrealistic about value
  • Buyer waived better judgment
  • Unfamiliarity with local market
  • Missed recent comparable sales
  • Failed to account for improvements
  • Conservative approach

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Impact of Low Appraisal

Lender bases loan on appraised value, not contract price.
Example:
  • Contract price: $400,000
  • Appraised value: $380,000
  • Loan amount at 80% LTV: $304,000 (based on $380,000)
  • Required down payment increases by $16,000
Buyer must cover the gap or deal must be renegotiated.
Lower value affects available equity and loan terms.Potential impacts:
  • Lower loan amount available
  • Higher loan-to-value ratio
  • PMI required
  • Less favorable interest rate
  • Cash-out amount reduced
  • Refinance may not make sense
Available credit based on appraised value.Lower appraisal means:
  • Smaller credit line
  • May not qualify at all
  • Higher rate due to LTV

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Options for Buyers

Buyer increases down payment to cover gap between appraised value and contract price.When this makes sense:
  • You have cash available
  • You believe property is worth more than appraisal
  • You want this specific property
  • Gap is small
Risk: You’re paying more than independent value opinion supports.
Ask seller to reduce price to appraised value or split the difference.When this works:
  • Seller is motivated
  • Few backup offers
  • Seller understands appraisal is independent
  • Market favors buyers
Approach: Present appraisal as market evidence, not ultimatum.
Buyer and seller each absorb portion of gap.
Example:
  • Gap: $20,000
  • Seller reduces price by $10,000
  • Buyer increases down payment by $10,000
Compromise that keeps deal together.
Challenge appraisal with additional information.What to provide:
  • Additional comparable sales appraiser missed
  • Information about improvements not noted
  • Correction of factual errors
  • Pending sales supporting higher value
Formal process through lender. See detailed section below.
Request new appraisal from different appraiser.Considerations:
  • Additional cost ($400 - $600)
  • No guarantee of higher value
  • Lender may average both appraisals
  • Not all lenders allow second appraisal
Usually last resort after reconsideration fails.
Use appraisal contingency to terminate contract.When appropriate:
  • Gap is too large
  • You can’t afford increased down payment
  • You believe appraisal is accurate
  • Better opportunities exist
Protects buyer from overpaying. Requires appraisal contingency in contract.
An appraisal contingency protects buyers if value comes in low. Without this contingency, buyers may be obligated to purchase at contract price regardless of appraisal, potentially forfeiting earnest money if unable to complete.

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Options for Sellers

Lower price to appraised value to keep deal together.When this makes sense:
  • You need to sell
  • Finding another buyer will take time
  • Next buyer may face same appraisal issue
  • Your pricing may have been optimistic
Work out compromise where buyer covers part of gap.Options:
  • Buyer pays difference
  • Split the difference
  • Seller credit for repairs instead of price reduction
Provide information to help challenge appraisal.What sellers can provide:
  • List of recent comparable sales
  • Documentation of improvements
  • Receipts for upgrades
  • Neighborhood information
Work with buyer’s agent to submit reconsideration request.
If current buyer walks away, list again.Considerations:
  • Next buyer may face same appraisal
  • Market may have shifted
  • Additional time on market
  • May need to adjust price anyway
Carry portion of purchase price as seller note.How it works:
  • Bank finances appraised value
  • Seller carries note for difference
  • Buyer makes two payments
Complex arrangement requiring legal documentation. Not common but possible.

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Reconsideration of Value

Formal process to challenge appraisal with supporting evidence.
Reconsideration is appropriate when:
  • Factual errors exist in report
  • Appraiser missed relevant comparable sales
  • Improvements weren’t properly considered
  • Comparable selection seems inappropriate
Not appropriate simply because you disagree with value.
  1. Review appraisal for errors or omissions
  2. Gather supporting documentation
  3. Submit request through lender (not directly to appraiser)
  4. Lender forwards to appraiser or AMC
  5. Appraiser reviews and responds
  6. Value may be adjusted, maintained, or rarely lowered
Factual corrections:
  • Correct square footage with measurements
  • Accurate room count
  • Improvement dates and costs
  • Permits for work completed
Additional comparables:
  • Recent sales appraiser may have missed
  • Pending sales supporting value
  • Sales from MLS with full details
  • Explanation of why comparable is relevant
Market information:
  • Multiple offer situation documentation
  • Days on market for similar properties
  • Market trend data
Weak reconsideration requests include:
  • “We need this value for the deal to work”
  • Opinion without supporting data
  • Comparables that aren’t truly comparable
  • Zillow or online estimates
  • Emotional arguments
Stick to facts and market data.
Value increased: Appraiser agrees with additional data and revises upward.Value maintained: Appraiser considered information but stands by original value.Value decreased: Rare, but appraiser may find errors that lower value.Reconsideration doesn’t guarantee change.
Never pressure an appraiser directly. All communication must go through the lender. Direct contact attempting to influence value is illegal and can void the appraisal.

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Appraisal Gap Coverage

Buyer commits in offer to cover difference between appraised value and contract price, up to specified amount.
Example: Offer includes appraisal gap coverage of $20,000. If appraisal is $20,000 or less below contract price, buyer covers difference.
Common in competitive markets where:
  • Multiple offers expected
  • Prices rising faster than comparable data
  • Buyers need to strengthen offers
  • Sellers want protection from low appraisals
  • Committing to pay more than appraised value
  • Using cash for gap instead of other purposes
  • Immediately underwater if values drop
  • Financing future sale at loss
Only offer gap coverage you can afford and are comfortable with.

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Preventing Low Appraisals

  • Don’t dramatically overpay in bidding wars
  • Research comparable sales before offering
  • Include appraisal contingency
  • Have cash reserves for potential gap
  • Price based on recent comparable sales
  • Document all improvements
  • Prepare list of upgrades for appraiser
  • Keep home in good condition
  • Be available to provide access promptly
  • Wait until recent comparable sales support your value
  • Complete planned improvements before appraisal
  • Prepare documentation of upgrades
  • Consider market timing
  • Get pre-appraisal estimate if available

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When Low Appraisal May Be Accurate

Sometimes low appraisals reflect reality:
  • Property is overpriced for market
  • Condition issues affect value
  • Neighborhood has declined
  • Similar homes selling for less
  • Buyer got caught up in bidding war
Consider whether appraisal is protecting you from overpaying rather than blocking a good deal.

Next: Appraisal vs Other Valuations

CMA, AVM, BPO, and tax assessment differences

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