Short answer: A low appraisal doesn't automatically end a home sale. When the appraised value comes in below the purchase price, buyers and sellers can renegotiate, split the difference, have the buyer bring more cash, request a reconsideration of value, or use an appraisal contingency if the purchase agreement includes one.
How does a home appraiser determine value?
An appraiser gives the lender an independent opinion of value, because the home is the collateral for the loan. The appraiser looks at:
- Recent comparable sales nearby
- Finished square footage and layout
- Condition and updates
- Lot size and location
- Unique features
- Current market conditions
Why would a house appraise for less than the purchase price?
A low appraisal doesn't necessarily mean a buyer overpaid or a seller overpriced. Common causes include rising markets where closed sales haven't caught up, few truly comparable homes, aggressive multiple offer situations, unique homes that are hard to compare, deferred maintenance, and improvements that don't return dollar for dollar.
What can a buyer do after a low appraisal?
- Bring additional cash to closing
- Renegotiate the purchase price
- Split the difference with the seller
- Request a reconsideration of value with better comparable sales
- Use an appraisal contingency, if the purchase agreement includes one
What can a seller do after a low appraisal?
- Reduce the price to the appraised value
- Negotiate somewhere between price and appraised value
- Provide relevant comparable sales or improvement details
- Return to the market and look for another buyer
What is appraisal gap coverage, and what's the risk?
Appraisal gap coverage is a buyer's written agreement to pay some or all of the difference if the home appraises low, usually up to a set amount. It can make an offer stronger in a competitive situation, but the buyer is committing real cash above the home's appraised value. Know the number you can cover before you agree to it. See Episode 5 for more on offer strategy.
Can sellers help support the appraisal?
Yes. Sellers and their agent can prepare a list of improvements with dates and costs, relevant comparable sales, and easy access to the home. Good presentation and realistic pricing from the start also help the appraiser see the full value.
Frequently asked questions
Does a low appraisal kill the deal?
Not necessarily. Buyers and sellers can renegotiate, split the difference, have the buyer bring more cash, request a reconsideration of value, or use an appraisal contingency.
Why do homes appraise below the purchase price?
Common reasons include rising markets where comparable sales lag behind, limited comparable homes, competitive bidding, unique properties, and deferred maintenance.
What is a reconsideration of value?
It is a request, made through the lender, asking the appraiser to review additional comparable sales or information that may support a different value.
How can sellers prepare for an appraisal?
Sellers can document improvements, share relevant comparable sales through their agent, keep the home accessible and well presented, and price realistically from the start.
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Liz Sandwick, REALTOR® | Coldwell Banker Realty | 17305 Cedar Ave, Lakeville, MN 55044 | 952-491-3685 | Liz@CBRealty.com
This article is general information, not legal, tax, or financial advice. Equal Housing Opportunity.