Finding your dream home and getting an accepted offer is exciting. However, there is still one important step before closing: the appraisal.

Many buyers and sellers are surprised to learn that a home's appraised value can impact the entire transaction. So what happens if a home appraises for less than the agreed-upon purchase price?

Let's break it down.

What Is a Home Appraisal?

A home appraisal is an independent opinion of a property's market value conducted by a licensed appraiser. The lender orders the appraisal to ensure the home is worth the amount being financed.

The appraiser evaluates the property's condition, size, features, upgrades, location, and recent comparable sales in the area.

Why Does a Low Appraisal Matter?

Lenders base their loan amount on the lower of the purchase price or the appraised value.

For example:

Purchase Price: $350,000
Appraised Value: $335,000

The lender will use the $335,000 value when calculating the loan amount.

This creates a $15,000 gap that must be addressed before the transaction can move forward.

Options When a Home Appraises Low

1. Renegotiate the Purchase Price

One of the most common solutions is for the seller to reduce the purchase price to match the appraised value.

Using the example above, the seller may agree to lower the price from $350,000 to $335,000.

This allows the buyer to move forward without bringing additional funds to closing.

2. Buyer Brings Additional Cash

If the buyer still wants the home and the seller is unwilling to reduce the price, the buyer can choose to bring additional cash to cover the difference.

For example, if the appraisal comes in $15,000 low, the buyer could pay that amount out of pocket in addition to their down payment and closing costs.

Not all buyers have the ability or desire to do this, but it can be a solution in competitive markets.

3. Meet Somewhere in the Middle

Sometimes buyers and sellers negotiate a compromise.

Using the same example, the seller might reduce the price by $7,500 and the buyer might bring an additional $7,500 to closing.

This allows both parties to share the burden of the appraisal gap.

4. Challenge the Appraisal

If there are concerns that the appraiser missed important comparable sales or overlooked significant improvements, the lender may allow a reconsideration of value request.

While appraisals are not often changed significantly, providing additional market data can sometimes result in adjustments.

5. Cancel the Contract

Many purchase agreements contain an appraisal contingency that protects the buyer if the property does not appraise.

If an agreement cannot be reached between the buyer and seller, the buyer may have the option to cancel the contract and receive their earnest money back, depending on the terms of the purchase agreement.

What Sellers Can Do to Prepare

While sellers cannot control the appraisal, they can help support value by:

• Providing a list of recent improvements and upgrades
• Keeping the home clean and well-maintained
• Sharing information about multiple offers when appropriate
• Ensuring the appraiser has access to all areas of the property

What Buyers Should Remember

A low appraisal does not necessarily mean you are paying too much for a home.

Appraisals are based on historical sales data, while market conditions can change quickly. In a rising market, it is not uncommon for appraisals to come in below contract price.

The key is working with an experienced real estate professional who can help navigate the options and negotiate a solution that works for everyone involved.

The Bottom Line

A low appraisal can feel stressful, but it doesn't have to derail your home purchase.

Whether it's renegotiating the price, challenging the appraisal, or finding another solution, there are often several paths forward.

If you're buying or selling a home and have questions about appraisals, I'd be happy to help you understand your options and guide you through the process.

Connie Stegora Homes
MBA, GRI, MRP, AHWD
Keller Williams Classic Realty NW
612-812-2870