A low home appraisal can disrupt your deal, but it’s manageable with the right strategy. This guide explains how to respond—whether by appealing, negotiating, paying the gap, or walking away. It also clarifies appraisal vs assessment basics: an appraisal determines market value for lenders, while an assessment estimates value for tax purposes. Understanding this distinction helps you make informed, strategic choices when navigating valuation shortfalls in a real estate transaction.
Understanding Home Appraisals
A home appraisal is a professional, third-party assessment of a property’s market value. Lenders order appraisals to ensure that the amount they’re lending doesn’t exceed the value of the property being used as collateral.
Why Appraisals Matter in Real Estate Deals:
- Protects lenders from lending more than a home is worth
- Helps buyers avoid overpaying in inflated markets
- Determines loan-to-value (LTV) ratio, affecting interest rates and PMI
What Happens When the Appraisal Comes In Low?
Let’s say you’ve made an offer on a house for $400,000 but the appraisal comes back at $380,000. Your lender now considers the home to be worth $380,000 and is only willing to finance a percentage of that value.
Here’s a quick side-by-side breakdown:
Scenario |
Purchase Price |
Appraised Value |
Lender’s Loan (90%) |
Your Down Payment |
| As Expected | $400,000 | $400,000 | $360,000 | $40,000 |
| Appraisal Low | $400,000 | $380,000 | $342,000 | $58,000 |
You must now bring an extra $18,000 to the table—or find another path forward.
Why Do Low Appraisals Happen?
Several factors can result in an appraisal that falls short of your contract price:
Common Causes:
- Bidding wars: Buyers push up prices above market value
- Outdated comparables: Appraisers use old sales that don’t reflect the current market
- Inexperienced or out-of-area appraisers
- Unique property features: Renovations or upgrades that aren’t valued the same in the area
- Rapid market shifts: Especially during economic uncertainty
Tip: Appraisals tend to be more conservative in a declining or uncertain market.
How to Respond When Your Appraisal Is Low
Here are the most effective strategies to deal with a low appraisal:
1. Appeal the Appraisal (Request a Reconsideration of Value)
If you believe the appraiser missed key features or used poor comps, you can request a Reconsideration of Value (ROV).
Steps:
- Work with your agent to review the appraisal report.
- Gather more accurate or recent comparable sales.
- Submit a formal request through your lender.
What to include in your appeal:
- Addresses and sales prices of better comps
- Highlighted features the appraiser may have overlooked (upgrades, renovations)
- Errors in the appraisal (wrong square footage, missed features)
2. Negotiate a Lower Purchase Price
Often, sellers are open to renegotiation—especially if they want or need to sell quickly.
How to approach it:
- Share the appraisal report with the seller
- Present your case backed by the lender’s stance
- Suggest a fair compromise (meeting halfway, covering closing costs, etc.)
Pro Tip: This works best in a buyer’s market or if the seller is highly motivated.
3. Cover the Appraisal Gap Out of Pocket
If the seller won’t budge and you still want the home, you may opt to pay the difference in cash.
Use this option when:
- You have the financial flexibility
- You believe the home’s long-term value will catch up
- The gap is manageable (e.g., under $10,000–$20,000)
4. Restructure the Loan Terms
Your lender may offer options to adjust your financing:
Possible adjustments:
- Increase your down payment to maintain the LTV ratio
- Accept PMI (Private Mortgage Insurance) if your LTV goes above 80%
- Explore other loan products (FHA, VA, or portfolio loans)
Example: A buyer with an initial 10% down might raise their down payment to 15% or 20% to meet the revised loan terms.
5. Walk Away (If Contingencies Allow It)
If your contract includes an appraisal contingency, you can cancel the deal and keep your earnest money deposit.
This might be your best option if:
- The appraisal is significantly below value
- You can’t cover the gap or restructure the loan
- The seller refuses to negotiate
Real-Life Case Study: When a Low Appraisal Helped the Buyer
Angela, a first-time buyer in Texas, offered $310,000 for a townhome in a competitive market. The appraisal came in at $295,000. Rather than walk away, she and her agent used the low appraisal as leverage to bring the price down to $300,000. She only had to bring in an extra $5,000 instead of $15,000—and still secured the home.
Tips to Avoid a Low Appraisal in the Future
Preventing surprises is the best defense. Here’s how:
- Use local agents who understand neighborhood comps
- Avoid inflated bidding unless you’re prepared for a shortfall
- Include an appraisal gap clause if you’re in a hot market and expect some variance
- Have your lender vet the appraiser for local experience, if possible
- Get pre-appraisal comps before submitting an offer
Related Tools & Resources
- How to Use Gift Funds for Your Down Payment
- What Is Mortgage Underwriting and Why It Can Delay Closing
- Understanding Conditional Mortgage Approval
- Appraisal Gap Calculator – Estimate Your Out-of-Pocket Gap
- Home Affordability Calculator – Can You Stretch Your Budget?
Key Takeaways
- A low appraisal isn’t the end of your home purchase.
- You have 5 main strategies: appeal, renegotiate, pay the gap, restructure the loan, or walk away.
- Use calculators, work closely with professionals, and don’t rush into a poor financial decision.
Final Thoughts
While a low appraisal can feel like a major roadblock, it’s actually an opportunity for smart decision-making. Whether it helps you negotiate a better deal or reconsider your purchase altogether, it gives you more power—not less.
Next Steps:
- Review your appraisal report
- Talk to your agent and lender about your options
- Use the calculators above to make the best decision for your finances