What to Do When Appraisal Comes in Low

You’ve made it through inspections. The contract is signed. Everything seems on track, and then the home appraisal comes in lower than expected. Now what?

This is one of the most stressful curveballs in the real estate process, and it’s more common than you think. When the appraised value is less than the purchase price, it creates what’s called an appraisal gap, a mismatch that can threaten your deal if you don’t know how to respond.

So, what to do when the appraisal comes in low? First, don’t panic. Whether you’re a buyer, seller, or real estate agent, there are a few options on the table. In many cases, deals can still move forward. It’s just about understanding your next steps and working collaboratively to find a solution.

This guide will walk you through:

• Why low appraisals happen
• What your options are when the home’s appraised value is less than the offer price
• How to navigate the situation based on current market conditions

By the end, you’ll have a clearer understanding of how to protect your purchase agreement and avoid walking away from the deal or losing your earnest money deposit.

What Is an Appraisal Gap?

An appraisal gap is the difference between the purchase price you’ve agreed to in your contract and the appraised value determined during the home appraisal process. For example, if you offer $300,000 for a house but the appraiser assigns a value of $295,000, you’ve got a $5,000 gap to address.

This scenario matters most in financed deals. Mortgage lenders use the appraised value, not the offer price, to determine how much they’re willing to loan. So if the appraisal is lower than expected, they’ll only approve a loan based on that reduced figure. The rest? It has to come from either the buyer, the seller, or a combination of both.

Appraisal gaps tend to surface right before final loan approval, often after inspections and just before closing. At that point, both the buyer and seller have invested time, money, and emotional energy into the home sale. A low appraisal can feel like a last-minute wrench in the works.

And while cash buyers bypass this step entirely, most home purchases involve financing. That’s why understanding what to do when an appraisal comes in low is critical for anyone involved in a real estate transaction.

Why Appraisals Come in Low

A low appraised value can be frustrating, especially when it threatens to derail a deal that feels solid. But if you understand why it happens, you’ll be in a better position to respond strategically. Here are the three most common reasons home appraisals come in lower than expected:

1. The Market Is Moving Faster Than the Data

Appraisers rely on comparable sales (homes that recently sold in the same area) to justify value. But in a hot market with rising prices and bidding wars, the appraisal process can lag behind reality. Even if a buyer is willing to pay more due to limited inventory, the house appraisal will still reflect past sales that haven’t caught up to the current momentum.

This is especially common in seller’s markets, where inflated prices outpace the local real estate market data.

2. The Property Has Deferred Maintenance or Needed Repairs

Home appraisers are required to factor in the condition of the property. If the home needs major repairs, like a failing roof, aging HVAC system, or electrical issues, that can bring the appraised value down. Even cosmetic issues, like damaged flooring or missing handrails, can signal risk to lenders.

The home’s value is based on what it’s worth today, not its future potential after renovations. If the appraiser believes significant work is needed, they’ll deduct accordingly.

3. Appraiser Error or Inexperience

Let’s be honest, appraisers are human, and they make mistakes. Maybe the appraiser was working out of the market, or they just had a bad day. I’ve seen appraisals come in way off from what fair market value actually was.

Sometimes appraisers miss key upgrades or features. Other times, they use poor comparable sales or don’t understand the local market nuances. My wife was an appraiser for many years, so I try to be nice to appraisers—partly for self-preservation! Their job is harder than people think, but that doesn’t mean they’re always right.

What Are Your Options When Appraisal Comes in Low?

When the appraisal comes in low, it creates an unexpected obstacle, but it doesn’t have to be a dealbreaker. Whether you’re the buyer or the seller, you still have a few options to move forward and close the sale successfully.

1. Negotiate the Purchase Price

One of the most common responses is for the seller to lower the contract price to match the appraised value. This is especially likely in a buyer’s market or when the home has been sitting for a while.

From the seller’s perspective, finding a new buyer who won’t face the same appraisal gap may be unlikely. Sellers often realize that reducing the purchase price is easier (and faster) than relisting and starting over.

2. Bring Extra Cash to Cover the Gap

In a competitive market like what we’ve seen over the last four or five years, buyers often choose to make up the difference between the appraised value and the offer price. This means increasing your down payment beyond the minimum required to satisfy your lender.

This strategy works best when the appraisal gap is manageable and the buyer has available funds—or support from a family member or personal loan—to close the gap.

3. Split the Difference

Another practical solution is to split the appraisal gap between both parties. If the gap is $5,000, maybe the seller drops $2,500 and the buyer covers the other $2,500. It’s a compromise that shows goodwill and keeps the deal alive.

Your real estate agent can help you navigate this option and handle the negotiation with professionalism and clarity.

4. Challenge the Appraisal (aka Request a Reconsideration of Value)

If you believe the home appraisal is flawed due to inaccurate data, inexperienced appraisers, or poor comparable sales, you can request an additional appraisal or appeal the one you received.

You can challenge the appraisal, though it’s not always effective. I’ve had appeals go in my favor, but not often. Telling an appraiser they got it wrong doesn’t usually go over well. They’re professionals, and they don’t like being told they’re bad at their job.

This typically involves submitting better comps and a letter from your agent outlining factual errors. While not always successful, it’s worth considering if you feel strongly that the home’s value was underestimated.

5. Walk Away (If You Have an Appraisal Contingency)

If none of the above solutions work and your contract includes an appraisal contingency, you may have the right to cancel the deal without losing your earnest money deposit. This is a last resort, but it’s better than being locked into a bad financial situation.

When to Consider an Appraisal Appeal

Challenging an appraisal isn’t always successful, but in certain cases, it’s absolutely worth a shot. If the appraisal report seems off, or your real estate agent spots clear issues in the home appraisal process, it may be time to push back.

Here’s when to seriously consider an appraisal appeal:

1. Poor Comparable Sales Were Used

If the appraiser used comparable homes that don’t align with your property, such as outdated, smaller, or less desirable homes, it can significantly impact the home’s appraised value. This is one of the most common mistakes we see when the appraisal comes in low.

A solid appeal includes better recent sales or updated comps that support your contract price more accurately.

2. Key Features or Upgrades Were Missed

Did the appraiser overlook a renovated kitchen, updated systems, or energy-efficient features? These oversights can drag down value. Your agent can help compile a detailed list of home improvements and upgrades, along with supporting documentation and photos.

This may lead to a second appraisal or reconsideration of value.

3. The Appraiser Was Unfamiliar With the Local Market

Sometimes appraisers are assigned properties in neighborhoods they don’t know well. If the appraiser was from outside your area or used comps from distant or dissimilar neighborhoods, you have a case.

The local real estate market can vary greatly block by block. A knowledgeable local agent can highlight this and advocate for a more accurate comparison.

4. Obvious Errors in the Report

Occasionally, the appraisal report includes factual errors: incorrect square footage, missing rooms, or wrong property details. These mistakes should be corrected immediately and may justify an additional appraisal.

Pro tip: Be respectful in your appeal. Appraisers are professionals, and a combative tone rarely leads to a favorable outcome. Instead, focus on submitting factual evidence and presenting a clear, objective case.

Market Conditions Matter More Than You Think

Appraisal gaps don’t happen in a vacuum. The outcome of a low appraisal value often hinges on the broader dynamics of the local real estate market. Whether you’re in a seller’s market or a buyer’s market can dramatically shape your options and how flexible each party is willing to be.

In a Seller’s Market

In a hot seller’s market, where inventory is tight and bidding wars are common, appraisal gaps happen more frequently. That’s because buyers often offer more than the home’s recent comparative market analysis supports.

Here’s what that typically means:

• Buyers may feel pressure to offer above market value to win.
• The home’s appraised value might not catch up to fast-rising purchase prices.
• Sellers hold more negotiating power and are less likely to drop their price.
• Potential buyers may need to bring more cash to make up the difference or waive the appraisal contingency entirely.

In these markets, walking away might mean missing out on a rare opportunity or starting over in a highly competitive environment.

In a Buyer’s Market or Balanced Market

In a more balanced or buyer’s market, the dynamic shifts:

• Fewer bidding wars mean homes typically sell closer to list or appraised value.
• Sellers are more likely to negotiate if an appraisal comes in low, either by lowering the purchase price or agreeing to split the difference.
• Buyers may have more time and leverage to request repairs or concessions tied to the home appraisal.

These conditions make home sale negotiations more flexible, with both sides focused on getting the deal done rather than rushing to win a bidding war.

Whether the seller adjusts the asking price or the buyer covers the gap often comes down to current market conditions. The stronger your understanding of the local market, the better you’ll be at negotiating a fair and realistic solution.

Relationships Still Matter in Real Estate

At the heart of every successful home sale isn’t just numbers; it’s relationships. When a deal hits a snag, like a low home appraisal, the difference between closing and falling apart often comes down to the people involved.

A strong real estate agent doesn’t just write up a good purchase agreement. They play a crucial role in navigating roadblocks with professionalism, empathy, and creative problem-solving. Whether they’re working with the buyer’s lender, the appraiser, or the listing agent on the other side of the deal, great agents focus on building solutions, not assigning blame.

Even when emotions run high, experienced agents know how to:

• Keep communication lines open
• Negotiate calmly and effectively
• Help both parties stay focused on the shared goal of reaching the closing table

The home appraisal process may be data-driven, but the outcome is influenced by how well the professionals involved collaborate. Real estate is a relational business. The stronger the relationships between the professionals involved, the more likely you are to get to closing and complete the deal.

Facing an Appraisal Gap? Don’t Panic, Start with These Steps

If you’re dealing with an appraisal lower than the offer, don’t panic or walk away right away. Many appraisal gaps can be solved with the right approach.

Start by seeing if an appeal makes sense. If the details of the appraisal seem off, challenging it could work in your favor. If that doesn’t get results, shift to negotiation.

You and the other party may be able to split the difference, adjust the price, or find a creative solution that helps bridge the gap.

Let’s Build a Plan That Works

Appraisal issues don’t have to kill your deal. The key is treating it as a problem to solve, not a battle to win. With clear communication and teamwork, most gaps can be resolved so you can close at a price that works for everyone.

Dealing with a low appraisal can feel stressful, but you don’t have to navigate it alone. Reach out to Absolute Real Estate, our team is ready to talk through your options and help you find a solution that works.