A home appraisal is an essential part of the home buying process. Whether you're a buyer, seller, or real estate agent, you know that the appraisal can make or break the deal. Ideally, the appraisal will match the agreed-upon sale price, but that’s not always the case. If the appraisal comes in lower than expected, it can create stress and uncertainty for both parties.

In this post, we'll break down what to do if a home appraisal comes in lower than expected and how to navigate the situation smoothly, whether you’re the buyer, seller, or agent.

What Happens When the Appraisal Comes in Low?

An appraisal is an independent assessment of a home's value conducted by a licensed appraiser. The appraiser looks at comparable properties (comps) in the area, the home's condition, and the local market to determine a value. If the appraisal comes in lower than the agreed-upon sale price, it can cause issues—especially for buyers relying on a mortgage.

For Buyers: Mortgage lenders typically won’t approve a loan for more than the appraised value. If a home appraises for $250,000, but you’ve agreed to pay $275,000, the lender won’t approve the loan for the full amount. This leaves the buyer and seller with a gap to fill.

For Sellers: A low appraisal can mean a delay or even a failed sale. Sellers may need to adjust their expectations or find a solution to keep the deal moving forward.

Step 1: Stay Calm and Don’t Panic

A low appraisal doesn’t automatically mean the deal is over. Both buyers and sellers have options and negotiating room, so don’t panic if the appraisal comes in lower than expected. The key is to address the situation with a clear mind and a solid strategy.

Step 2: Review the Appraisal Report

Before making any decisions, thoroughly review the appraisal report to understand why the appraiser gave a lower value. The report will outline the appraiser’s reasoning, including:

• Comparable sales (comps): Are the comps used in the appraisal truly comparable to the property in question? Sometimes appraisers may choose comps that are not an exact match in terms of size, age, or location, which could lead to a lower valuation.

• Condition of the property: Did the appraiser account for recent upgrades or renovations that could add value to the home? If the appraiser didn’t properly account for the property’s condition, this could be a reason for a low valuation.

• Market conditions: Are there any significant market changes that the appraiser didn’t reflect in the report? For example, a shift in the market from a seller’s to a buyer’s market could impact appraisals.

If there are discrepancies in the report or if you believe the appraiser missed key details, you can challenge the appraisal.

Step 3: Options for Buyers When the Appraisal is Low

If you’re the buyer and the appraisal comes in lower than expected, here are your options:

• Negotiate the Price with the Seller
  If the appraisal is significantly lower than the sale price, you can ask the seller to lower the sale price to match the appraisal. Many sellers are willing to negotiate in this situation, especially if the appraisal comes in lower than expected, and they want to close the deal.

• Pay the Difference
  If the seller won’t lower the price, you can choose to pay the difference out-of-pocket. For example, if the appraisal comes in $10,000 lower than the agreed-upon price, you may need to pay that $10,000 difference as a down payment to secure the loan for the full purchase price. Make sure you’re comfortable with this extra cost before going this route.

• Request a Reconsideration of Value (ROV)
  If you believe the appraisal was inaccurate or failed to reflect key property features, you can request a Reconsideration of Value. In this process, you (or your agent) present new comps or additional information to the lender, asking for a reevaluation of the appraisal. This can sometimes result in a higher appraised value, although it’s not guaranteed.

• Walk Away from the Deal
  If the appraisal comes in low and the seller won’t budge on price, and you can’t cover the difference, you may need to walk away from the deal. This is often a last resort but might be the best option if you're not comfortable with the terms or if you’re not able to secure financing.

Step 4: Options for Sellers When the Appraisal is Low

For sellers, a low appraisal can be frustrating, especially if you were expecting to sell at a higher price. Here are your options as the seller:

• Lower the Price to Match the Appraisal
  If you want to keep the deal moving forward, you can reduce the sale price to the appraised value. This is the most straightforward way to move forward, but it’s not ideal if you were counting on a higher sale price.

• Appeal the Appraisal
  Sellers can also request a review of the appraisal. If you believe that the appraiser missed certain factors or used inappropriate comps, you can ask the lender to reconsider the value. This process is known as an appeal, and it may lead to a higher appraisal if valid new information is provided.

• Negotiate with the Buyer
  In some cases, the seller and buyer can meet in the middle. The seller may lower the price slightly, and the buyer might agree to cover a portion of the difference. This can be an effective way to move the sale forward without a drastic price reduction.

• Offer Seller Financing
  If you're in a position to do so, offering seller financing can help close the deal if the buyer is having trouble securing a mortgage for the full amount. This option can be complex, so it’s important to consult with a real estate attorney if you consider it.

Step 5: Consider the Bigger Picture

A low appraisal doesn’t necessarily reflect the true value of a home—it’s simply the appraiser’s professional opinion based on specific data. The market could shift, new comparable properties could sell, or the buyer may agree to take the deal at a slightly lower price.

It’s essential for both parties to stay flexible and keep the lines of communication open. A low appraisal can be an opportunity for both buyer and seller to reassess the situation and find common ground.

Conclusion

A low appraisal doesn’t mean your real estate deal is doomed. By understanding your options, reviewing the appraisal report, and negotiating thoughtfully, you can find a solution that works for both parties. Whether you’re a buyer, seller, or real estate agent, navigating a low appraisal requires patience, flexibility, and a clear strategy. With the right approach, you can overcome this obstacle and move forward with a successful transaction.