What is a home appraisal, and what happens if the appraisal comes in low?

Understand why lenders order an appraisal

A home appraisal is an independent opinion of a property’s value prepared by a qualified appraiser. According to NAR, lenders commonly require an appraisal to help determine whether the home’s value supports the proposed mortgage. The appraiser considers property characteristics, condition, and comparable sales. An appraisal is different from a home inspection. It focuses primarily on value, although certain loan programs may have property-condition requirements. The appraised value may also differ from the agreed purchase price, particularly when buyer competition is strong.

Know what happens when an appraisal is low

When the appraisal is below the purchase price, the difference is called an appraisal gap. If a home is under contract for $400,000 but appraises for $385,000, that creates a $15,000 gap. The lender may base the available financing on the lower value, potentially requiring the buyer to provide more cash. Depending on the agreement, the parties may renegotiate the price, the buyer may cover some or all of the difference, or the transaction may not proceed. Buyers can also ask their lender about requesting a reconsideration of value when relevant information may have been overlooked. A change in the appraisal is not guaranteed.

Consider appraisal protections before making an offer

NAR explains that an appraisal contingency can give buyers certain contractual options when the property’s appraised value falls short. Waiving that protection may increase financial risk, especially if the buyer does not have funds available to cover a gap. Review financing limits and cash reserves before agreeing to appraisal-related terms. For Pittsburgh-area buyers, a competitive offer should still be informed by comparable sales and a realistic budget. An experienced agent can explain local pricing evidence, while the lender handles appraisal questions. A Pennsylvania real estate attorney can clarify contractual rights if an appraisal dispute affects the purchase.

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Sources

National Association of REALTORS®: Consumer Guide: The Appraisal Process; Consumer Guide: Real Estate Sales Contract Contingencies

*Appraisal requirements, loan terms, and contract remedies vary. Consult the lender, appraiser, and a qualified Pennsylvania real estate attorney as appropriate. Includes AI-generated content.