What To Do When Your Appraisal Comes In Lower Than Your Offer

Appraisals are an important part of the mortgage process, mainly because they ensure that you’re paying a fair price for your new home as a buyer. Appraisals also act as a safeguard for all parties involved, from the seller to your mortgage lender.

If it’s your first time buying a home, you might wonder how exactly appraisals can help protect you and your new investment in real estate. Beyond that, in a market with home values on the rise, there’s the possibility that your appraisal may come in low, leaving you to figure out your next steps.

We will cover how appraisals work, why you have to get one when you take out a mortgage, why they can come in low, and what your next steps are in that situation. Let’s get started!

What is an Appraisal, and Why Do You Have to Get One?

A home appraisal is a defensible and carefully documented opinion of a home’s market value.

When you buy a house, an appraisal is done to confirm that the home’s contract price is accurate, considering the home’s location, condition, and unique features. If you are refinancing a home, the lender uses the appraisal to verify that they aren’t lending more money to you than the property is actually worth.

Lenders require a professional, independent appraisal of the home you want to buy or refinance. The entire appraisal process ensures that the property’s value meets the loan guidelines and lender requirements.

It also assures that you aren’t paying too much for the property, potentially leaving you in an underwater mortgage situation.

How Do Appraisals Come In Low?

Understanding the appraisal process and the why behind it still doesn’t explain how one can come back lower than the purchase price you agreed to as a buyer. And if you’ve just found out yours has come in below your contract price, you will want to know why.

There’s typically not one definitive answer because of the many aspects of the home appraisal process. But, these are some typical contributing factors to low appraisals:

  • Comparable Home Sales in Your Neighborhood. A large part of the formula for calculating your prospective home’s value is comparable sales that have closed recently in your area. It’s important to note that comps must be completed transactions and not other properties active on the market.
  • Lack of Comparable Properties Nearby. This is typically a more significant contributing factor in rural areas where there may not be similar homes to yours.
  • Foreclosures and Bank-Owned Sales Nearby. If these are included as comps, they can drive down the value of your appraisal.
  • High Expectations. It’s important to take a look at what has actually sold in your area and what’s been on the market longer than average. By digging into your local home sales data, you’ll be better prepared for what to expect regarding your home valuation.

What To Do Next as a Buyer When You Get A Low Appraisal?

No one wants to hear that their dream home has appraised below what they agreed to pay. But, the good news is that you may still be able to make the deal happen.

Your lender will not be able to lend you more than the appraised value. In fact, there is a maximum amount that your loan can go up to, depending on the type of loan program you’re utilizing. This is calculated using the loan-to-value ratio, or LTV.

You’ll want to work with your loan officer to make sure you know the maximum LTV for the loan program you’re qualified for.

Your options for how to proceed as a buyer are to:

  • Pay the difference between the appraised price and your agreed-upon buying price out of pocket.
  • Negotiate with the seller to lower the selling price to the appraised price, or to split the difference.

If you had an appraisal contingency in your purchase agreement, that will give you more negotiating power with the seller. That’s because this type of contingency allows you to back out of the sale with no penalty if the appraisal comes in low. You’ll also get your earnest money deposit back too.

What To Do Next as a Seller When The Appraisal Comes In Low?

Just as the buyer feels deflated by the news of a low appraisal, no seller wants a deal that’s so close to the finish line to fall through either. So what can you do as a seller to ensure you get a fair price and keep the deal on track?

The first thing you should do is engage your real estate agent. They are your advocate in this transaction and should help figure out the best plan of action for how to move forward past a low appraisal.

Then you’ll want to review the purchase agreement. If there was an appraisal contingency agreed to, your best bet is to negotiate with your buyer to either lower the price or come to an agreeable solution. This ensures the sale can move forward so that you don’t have to go back to square one with putting your home back on the market.

You should also check if a second appraisal can be requested. There are some scenarios when a second appraisal can be ordered, but you’ll need to work with your listing agent, and your buyer will need to coordinate with their loan officer to determine if this is a viable option.

A low appraisal can feel overwhelming to deal with and is disappointing news to hear when you’re feeling so close to getting into your new home. The most important thing to remember is that you have both your buying agent and loan officer on your side. They are there to be your advocate and make your homeownership goals become reality.


If you’re just getting started in the home buying process, you’ll want to work with an experienced loan officer who can help you navigate the process and even overcome challenges like a low appraisal.

Get a free consultation from our team today.


The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 8/4/2022.