What Happens When Your Home Doesn't Appraise at the Contract Price?

You have accepted an offer, signed the contract, and made it through the inspection. Then the appraisal comes back, and the value is lower than the price the buyer agreed to pay.

It can be an uncomfortable surprise, but a low appraisal does not automatically mean the sale is over. There are several ways a buyer and seller can address the difference.

First, understand what the appraisal actually means.

An appraisal is an independent opinion of a home's market value. For a financed purchase, the lender uses that valuation to help determine how much it is willing to lend against the property. If the appraisal comes in below the contract price, the buyer may not be able to borrow as much as originally expected.

For example, suppose you agreed to sell your home for $400,000, but the appraisal comes in at $380,000. The lower valuation could reduce the amount the lender is willing to finance, creating a gap between the contract price and the buyer's available financing that needs to be addressed before the transaction can move forward.

One option is for the buyer to bring additional cash to closing. If the buyer has enough money available, they may be willing to cover some or all of the financing gap and keep the original contract price.

Another option is to renegotiate. The buyer may ask you to lower the sale price, or the two sides could agree to meet somewhere in the middle. You do not automatically have to agree to a price reduction. What happens next depends on the contract and what both sides are willing to negotiate.

There is another possibility if the appraisal appears to contain factual errors or leaves out relevant information. The buyer can ask the lender about requesting a reconsideration of value, sometimes called an ROV. This process allows the lender to review information that may support a different valuation. Sellers generally do not request an ROV directly from the appraiser, because the appraisal is part of the buyer's mortgage process.

Finally, the contract may give the buyer a way to walk away.

If the purchase agreement includes an appraisal contingency and the appraisal comes in below the contract price, the buyer may have the right to cancel the transaction or renegotiate, depending on the specific terms.

For sellers, the key is not to assume that a low appraisal has only one possible outcome. The next step is to understand the appraisal, review the contract, and determine what options are available to both sides.

The appraisal may not be the result you wanted, but knowing your options can help you decide what makes the most sense for the transaction.