You found the home, negotiated the offer, and now the purchase is moving toward closing. Then the appraisal comes in below the agreed purchase price. Does that mean the deal is over? Not necessarily. A low appraisal can affect your financing and may require some new decisions, but depending on your contract, loan, available funds, and the seller’s willingness to negotiate, there may be several ways to keep the purchase moving forward.
Appraisal issues continue to be one reason some real estate closings are delayed. If you’re financing your purchase, the appraisal or other valuation used by your lender can affect how much the lender is willing to finance. Understanding what an appraisal does — and what it doesn’t do — can help you evaluate your options if the value doesn’t support the price you agreed to pay.
WHAT IS AN APPRAISAL?
An appraisal is an independent professional opinion of a property’s value supported by market data and analysis. Depending on the assignment, the appraiser may consider the property’s location, size, condition, features, improvements, and relevant comparable sales, along with other information appropriate to the valuation.
An appraisal is different from an estimate of value or a Comparative Market Analysis (CMA) prepared by a real estate professional. A CMA is generally used to help evaluate a property’s position in the market. An appraisal is performed by an independent credentialed appraiser for a specific valuation purpose, often in connection with your financing.
WHY IS AN APPRAISAL NEEDED?
If you’re obtaining a mortgage, your lender may require an appraisal or another acceptable valuation method to help determine whether the property provides sufficient collateral for the loan. The lender manages the valuation process and considers the result as part of underwriting.
For a typical first-lien mortgage, you’re entitled to receive a free copy of the appraisal or other written valuation obtained by the lender. Review it carefully. Beyond the final value, the report can help you understand the property information, comparable sales, and adjustments used to develop that opinion.
If you’re paying cash, there is no mortgage lender requiring a valuation. You may still choose to obtain an independent appraisal if you want another professional opinion of value, subject to the terms of your purchase agreement.
WHAT IF THE APPRAISAL IS BELOW THE PURCHASE PRICE?
The purchase price represents what you and the seller agreed the property is worth to you in this transaction. The appraisal is an independent opinion of value prepared for a particular purpose. Those numbers don’t always match.
If the appraised value supports the lender’s requirements, financing can generally continue through underwriting. If the appraisal comes in below the purchase price and affects the amount the lender is willing to finance, however, you’ll need to look at the contract, your loan, and your financial options before deciding what to do next.
- You may have the right to cancel. If your purchase agreement contains an appraisal or financing contingency that applies to the situation and its requirements are satisfied, you may have the right to terminate the agreement. Whether earnest money is returned depends on the contract and applicable requirements, so the specific language matters.
- You and the seller can renegotiate. The seller might agree to reduce the purchase price, you may agree to contribute additional cash, or the two of you may negotiate another solution. Neither side is automatically required to absorb the entire difference unless the contract says otherwise.
- You may choose to bring additional cash. If your financing permits it and you have the available funds, you may decide to pay some or all of the difference between the purchase price and appraised value yourself. Before doing so, consider how that decision affects your cash reserves, other purchase expenses, and overall financial plans.
- You can ask about a reconsideration of value. If the appraisal appears to contain a factual error, misses an important property characteristic, or uses comparable sales that raise legitimate questions, talk with your lender about its reconsideration-of-value process. You may be able to provide relevant information for review, although a different valuation is never guaranteed.
THE APPRAISAL IS INFORMATION — AND A DECISION POINT
A low appraisal doesn’t necessarily mean you agreed to pay too much for the home. Market value and the price a particular buyer is willing to pay can differ, especially when competition, property features, or personal priorities influence an offer. But the appraisal does give you new information that deserves careful consideration.
Before deciding whether to renegotiate, contribute more cash, request a review, or exercise a contractual option, consider both the property and your broader financial position. The question isn’t simply, “How do I save this deal?” It’s whether moving forward still makes sense for you.
If a low appraisal becomes part of your purchase, I’ll help you understand the real estate options available under your contract and communicate with the seller’s agent while you work with your lender on the financing side. Sometimes the seller adjusts the price. Sometimes the buyer contributes more. Sometimes both sides compromise. And sometimes walking away is the better choice.
The important thing is to understand what the appraisal changes — and what it doesn’t — so you can make the next decision with the full picture in front of you.