Imagine this: you’ve spent weeks negotiating the perfect deal on a home. The buyer is excited, the seller is relieved, and everyone is expecting a smooth closing. Then, the appraisal report comes in—and it’s lower than the agreed-upon sale price. Suddenly, the entire transaction is at risk.
If this happens to you, don’t panic. A low appraisal doesn’t mean the deal is dead, but it does mean you need to take strategic action. Whether you’re a buyer or a seller, knowing how to navigate this situation can save you time, money, and stress. In this guide, we’ll break down why appraisals fall short, what options you have, and how to ensure a successful sale despite the setback.
Why Does a Home Appraise Below the Sale Price?
Appraisals are an essential part of most real estate transactions, especially when financing is involved. Lenders require an appraisal to ensure they aren’t lending more than a home is worth. But sometimes, the appraised value comes in lower than expected. Why?
Market Conditions Can Shift Quickly
If home prices in your area have been rising rapidly, appraisals may struggle to keep up. Appraisers base their valuations on recent comparable sales (comps), which might not yet reflect the latest bidding wars and price surges.
For example, if a similar home sold for $700,000 three months ago, but the market has since heated up, your home might have multiple offers above $750,000. However, the appraiser may still use outdated data, leading to a lower valuation.
The Appraiser’s Approach Matters
Not all appraisers are created equal. Some may be more conservative in their estimates, while others may lack experience in certain neighbourhoods. If an appraiser undervalues key home features—like recent renovations, upgraded finishes, or unique selling points—it can drag the valuation down.
A real estate agent who knows the local market well can often provide additional comparable sales or evidence to challenge a questionable appraisal.
How a Low Appraisal Affects Buyers and Sellers
A low appraisal impacts both sides of the deal—but in different ways.
For Buyers: The Loan Might Not Cover the Purchase Price
If the appraisal comes in lower than the sale price, the lender will only finance based on the appraised value. That means you’ll either have to cover the difference out of pocket or renegotiate the deal.
For example, let’s say you agreed to buy a home for $500,000, but the appraisal comes in at $480,000. If you were planning to put 20% down, you’d now need to pay an extra $20,000 in cash—or risk losing the deal altogether.
For Sellers: A Pricing Adjustment May Be Necessary
From the seller’s perspective, a low appraisal can mean having to lower the price, which is never ideal. Buyers may ask you to reduce the sale price to match the appraised value, especially if they can’t afford to make up the difference.
This is where negotiation skills come into play. If you’re a seller in a competitive market, you might be able to push back or find a compromise—but if inventory is high, you may need to adjust expectations.
Your Options If the Appraisal Comes in Low
A low appraisal isn’t the end of the road. You have several options to keep the deal alive and protect your investment.
1. Renegotiate the Price
One of the most common solutions is for the buyer and seller to renegotiate the price to match the appraised value. This benefits the buyer by avoiding additional out-of-pocket costs, and for the seller, it ensures the deal doesn’t fall through.
While this might not be ideal for sellers, it can be a practical solution if the market is slowing down or if there are limited alternative buyers.
2. Challenge the Appraisal (Rebuttal of Value)
If you believe the appraisal is incorrect, you can challenge it by providing additional comparable sales or evidence. Your real estate agent can help gather:
- Recent sales that were overlooked
- Documentation of home improvements
- Local market trends that justify a higher valuation
While appraisal disputes don’t always work, if there were errors in the report, a reassessment could increase the home’s appraised value.
3. Ask for a Second Appraisal
Buyers can request another appraisal—especially if there are legitimate concerns about accuracy or appraiser experience. This is most successful when:
- The first appraiser wasn’t familiar with the neighbourhood
- Comps were outdated or irrelevant
- There were clear errors in the report
Keep in mind that not all lenders allow second appraisals, but it’s worth asking if you believe the first valuation was unfair.
4. Cover the Shortfall in Cash
If the buyer is financially able, they can pay the difference between the appraised value and the sale price in cash. This is often a good option in a hot seller’s market, where competition is fierce, and walking away could mean losing out on a desirable home.
For example, if a home appraises at $480,000 but the agreed price is $500,000, the buyer can pay the $20,000 difference to keep the deal intact.
5. Walk Away (If Contingencies Allow)
Most buyers include an appraisal contingency in their contract, which allows them to back out without penalties if the home doesn’t appraise. If a seller won’t budge on price and the buyer can’t cover the shortfall, walking away may be the best move.
Sellers should be aware that if a deal falls through due to appraisal, it could impact their ability to attract new buyers, especially if financing remains an issue.
How to Prevent a Low Appraisal from Derailing Your Sale
While you can’t control every aspect of an appraisal, proactive preparation can help reduce the risk of a low valuation.
For Sellers: Set a Realistic Price and Prepare Your Home
- Price your home based on recent comps, not just wishful thinking.
- Work with an experienced agent who understands the local market.
- Document upgrades and improvements to justify a higher valuation.
- Clean and stage your home to ensure it looks its best during appraisal.
For Buyers: Work with a Savvy Lender and Agent
- Ask your lender about their appraisal process and how disputes are handled.
- Ensure your real estate agent provides recent, relevant comps.
- Be prepared to negotiate or cover a potential appraisal gap.
Conclusion
A low appraisal can feel like a major roadblock, but with the right strategy, it doesn’t have to kill your deal. Whether you’re negotiating the price, challenging the appraisal, or finding creative financing solutions, understanding your options puts you in control.
At The Tar Team, we help buyers and sellers navigate tricky situations like this every day. If you need expert guidance on handling a low appraisal—or any real estate challenge—reach out to us today.