What Happens if The Appraisal Is Lower Than the Offer?

What Is a Home Appraisal?

A home appraisal is an evaluation of a home's current market value. Mortgage lenders typically require a professional, third-party home appraisal as part of the homebuying process. This helps ensure they're not issuing loans for more than a property is worth and protects them from losses.

Your home's appraised value also comes into play when you're calculating your home equity. You can find your equity by subtracting the outstanding balance on your mortgage from the home's appraised value. That can help you compare your debt to your assets, and it's also part of qualifying for a home equity loan or line of credit.

How Much Does an Appraisal Cost?

Appraisals often cost somewhere between $350 and $550, but your local market will have a big impact on what you'll pay. The buyer's lender typically chooses the appraiser, and the buyer is responsible for footing the bill.

What Do Appraisals Look At?

A home appraisal takes into account the material condition, size and features of a home, alongside the recent sale prices of comparable properties in your market, also called comps.

Here's a breakdown of some of what an appraisal considers:

• The home's square footage
• The year the home was built
• Neighborhood characteristics
• The number and size of bedrooms
• The home's overall condition and any needed repairs
• The home's amenities, including features such as a fireplace or a basement
• Utilities, including energy-efficient appliances or the type of plumbing or lighting in the home

Learn more: How to Buy a House: Step-by-Step Guide

What Does a Low Appraisal Mean?

When an appraisal comes in low, it means that the value of the property assessed by the appraiser is less than the purchase price agreed upon by the buyer and the seller.

A low appraisal can complicate the home sale agreement. Depending on the terms of the contract and how much cash the buyer can bring to the table, a low appraisal could cause the deal to fall through.

Understanding LTV

Lenders use a measure called loan-to-value ratio (LTV) to assess their risk before issuing a mortgage. LTV measures the size of your mortgage compared to the value of the home. Lenders set their own LTV requirements as part of their criteria for evaluating borrower eligibility, and many lenders like to keep LTV below 80%. But there are also broader industry standards that cap the amount you can borrow. To meet the guidelines set by Fannie Mae and Freddie Mac, lenders can't issue mortgages with LTV greater than 95% to 97%.

In practical terms, that means that you typically can't get a home loan for more than the home is materially worth. So, if the home's appraised value is less than your offer amount, your funding may fall through. Fortunately, an appraisal contingency baked into your offer allows you to get out of the deal unscathed, meaning you'll keep your earnest money.

On the other hand, if you're determined to buy the home anyway, you may be able to make up the difference by bringing more cash to the deal—but that isn't without risks. More on this below.

What Causes Low Appraisals?

Appraisals can come in low for any number of reasons. Here are some possibilities:

• The home was overpriced. One of the most common reasons for an appraisal coming in low is that the property was simply listed for more than its market value. The seller may not have considered needed repairs or overestimated the value of home improvements when setting their asking price, for instance.
• Home prices may be shifting rapidly in your area. A sudden decrease in local home prices could mean that the seller listed the home for more than it's now worth. On the other hand, in a red hot market where home prices are rapidly increasing, the comps that the appraiser used in their valuation may no longer reflect the actual market value of the home.
• A bidding war could have pushed the offer up. In competitive markets, hotly contested homes may spark bidding wars that can push a home's agreed-upon purchase price up so high that they exceed the home's appraised value.
• The appraiser may have missed something. In some cases, it's possible that an appraiser could have missed value-adding details about the home, leading to an undervalued appraisal. Buyers can review the appraisal report to look for any large inconsistencies, such as incorrect square footage or missing amenities. If the appraiser made a mistake, you may be able to dispute the appraisal (more on this below).

Learn more: What to Look for When Buying a House

What to Do if the Appraisal Comes in Low

Learning that you put in an offer for more than the home's appraised value can open up a lot of questions. It's important to know your options before you decide how to proceed.

You Could Walk Away From the Deal

Depending on the details of the purchase agreement, the buyer may be able to withdraw their offer without penalty in light of a low appraisal. If you don't have an appraisal contingency (more on this below), then backing out of the deal may mean losing some or all your earnest money.

Since local laws impact when your earnest money may be forfeited, you should consult with your real estate agent or a real estate attorney to know what to expect.

The Buyer Could Cover the Difference

If you have the extra cash, you could consider accepting the offer based on the appraised value. Then, you'd need to pay the seller the cash to make up the difference between the appraised value and the sale price.

Even if you have the money, you should consider whether it's worth buying a home above appraised value. Paying more than a home's fair market value can impact your long-term equity, so it may be a better idea to renegotiate instead.

You Could Negotiate With the Seller

If the seller is eager to close the deal (which is more likely in a balanced or slow market), you may be able to negotiate with them to get them to agree to a lower sale price. In some cases, the sellers may be willing to adjust the purchase price based on the appraised value. Or, you could also ask the seller to make concessions, such as covering a portion of the closing costs, allowing the buyer to put more funds toward the appraisal gap.

On the other hand, if the seller has multiple offers to choose from, they may be unwilling to lower their price or make additional concessions.

You Could Appeal the Appraisal

In some cases, it may be possible to dispute a home appraisal if you find that it's inaccurate or contains errors or omissions. The buyer receives a copy of the appraisal report and can look it over for any clear errors, such as missing bedrooms or an incorrect school district. Another issue that may lead to a low appraisal are comps that are in different neighborhoods or that differ widely in size, condition or features.

If you find large issues with the appraisal that you believe have led to an incorrect valuation of the property, you could consider contacting your lender to request a reconsideration of value (ROV). Gather supporting information (such as updated comps) to make your case for a reconsideration.

Learn more: How to Dispute a Home Appraisal

Should You Waive the Appraisal Contingency?

In hot markets, some buyers may be wondering whether it's worth it to waive the appraisal contingency to make their offer more competitive. But an appraisal contingency is designed to provide important protection for a buyer by ensuring they aren't forced to overpay for a home. That makes waiving it a risky idea.

An appraisal contingency is a clause in the sales contract that lets you back out of an offer without losing your earnest money if the appraisal comes in lower than the agreed-upon offer price. While not required, appraisal contingencies are a common way of protecting the buyer from financial loss: Data from the National Association of Realtors (NAR) shows that just 17% of buyers waived appraisal contingencies in January 2025.

So, while waiving an appraisal contingency may make your offer stand out, it also exposes you to risk. Even if you have the cash to cover the difference, depending on how the market shifts and how long you stay in your home, you may not recoup the extra money you paid if you sell the house down the line.

Consider an Appraisal Gap Coverage Clause

An appraisal gap coverage clause is a way of putting in a strong offer, but in a more contained way than waiving appraisal contingencies entirely. It's an addition to your purchase offer that states that, in the event that the home appraises for less than your offer, you're willing to pay the difference up to a set amount.

Example: Say you offer $400,000 on a home and include an appraisal gap contingency for up to $20,000. If the home appraises for $380,000, you'd be responsible for bringing the additional $20,000 in cash. On the other hand, if the home appraised for $390,000, you'd only be responsible for making up the $10,000 gap.

Appraisal gap coverage can make your offer stand out because it adds reassurance for the seller that the deal won't fall through. For the buyer, it also limits how much you'd be responsible for paying if the appraisal comes in low.

Learn more: Housing Market Predictions: What to Expect in 2025

The Bottom Line

When an appraisal comes in low, many sellers are willing to lower the price to close the deal. In competitive markets, that may not always be the case. Some buyers may consider covering the gap, or be prepared with an appraisal contingency to walk away.

Beyond navigating the complexities of closing, buyers should be in the know about their credit to help ensure a smooth mortgage approval process. Sign up for free credit monitoring through Experian for a clear view of how your borrowing habits are impacting your score.