What happens if my home appraises for less than the agreed sale price?

Understand what a low appraisal means

When a buyer is financing a purchase, the lender will usually require an appraisal to help determine whether the property’s value supports the loan.

The National Association of REALTORS® describes an appraisal as an independent opinion of market value prepared by a licensed or certified appraiser. The appraiser does not represent either the buyer or seller; the purpose is to provide an independent valuation for the lender.

When the appraised value is below the agreed purchase price, the difference is commonly referred to as an appraisal gap.

A lender generally bases its financing on the appraised value rather than simply increasing the loan because the buyer and seller agreed to a higher price. A lower appraisal therefore does not automatically end the transaction, but it can create an important financial and negotiating issue.

Consider what can happen next

Several outcomes may be possible depending on the purchase agreement and financing.

The seller may agree to reduce the sale price. The buyer may choose to contribute additional cash. The parties may negotiate a combination of the two.

In some cases, a buyer may ask the lender for a reconsideration of value when there is a legitimate factual basis—for example, relevant information or comparable sales that may not have been considered.

The appraisal provisions in the purchase agreement are important because they may establish deadlines and rights for the buyer and seller.

Manage appraisal risk before accepting an offer

Appraisal risk is one reason sellers should evaluate more than the offered purchase price when comparing offers.

Financing type, appraisal-related terms, the buyer’s available cash, and the relationship between the contract price and recent comparable sales may all affect how much risk an offer carries.

A lower appraisal also does not necessarily prove that the original listing price was wrong. In a competitive market, a buyer may agree to a price above what an appraiser’s comparable-sale analysis ultimately supports.

Questions about the valuation should be handled through the appropriate lender and appraisal channels. Contractual rights should be interpreted by a qualified attorney when necessary.

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Sources

National Association of REALTORS®: The Appraisal Process · Overcoming Roadblocks to a Sale or Purchase

Appraisal questions should be addressed through the appropriate lender and appraisal professionals. An attorney should interpret contractual appraisal rights when necessary. Includes AI-generated content.