The Home’s Appraisal Value Is Less Than My Offer, Now What?

A low appraisal can happen for any number of reasons, but it doesn’t have to be a deal breaker.

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It’s a nightmare situation: You’ve spent months searching for your dream house, finally get an offer accepted, and then … the house doesn’t appraise for the agreed-upon price.

Now what?

Take a deep breath

“It can be heart-wrenching for the buyer and seller if the deal falls apart because of the appraisal,” says Suffolk, VA real estate agent Lori Strickland.

But you’re not alone. Low appraisals happen more often than you might think, especially in rising markets.

Sometimes there are insufficient comparable sales applicable to the home you want, or maybe distressed sales in the area have skewed the appraisal.

“Traditional lenders will generally only lend funds up to a certain percentage of the appraised value [80% of appraised value as opposed to 80% of the contract price],” says Michael R. Santana, a Florida attorney.

If the appraisal is lower than your offer, you may need to come up with more cash — but you do have other options.

Look over the appraisal contingency clause

An appraisal contingency clause built into your contract allows you to reevaluate the situation or renegotiate if needed. But even with a contingency clause, you could end up spending more or walking away to look for another house.

Sometimes all parties need to join together to make the deal work: sellers, buyers, and agents. Sellers might come down on price, you might pay closing costs, and agents might even take less of a commission — but the deal still goes through.

Get a second opinion

Maybe the appraiser’s estimate of the home’s value was inaccurate. If so, Sam Heskel, CEO of Nadlan Valuation Inc., recommends a value appeal.

“The appraiser will review the appeal and respond by reevaluating the property or explaining why he or she did not use the comparable sales the lender sent,” says Heskel.

Another option is to try working with your lender to get a second appraisal. They might be willing to accept the subsequent, higher appraisal.

“In some instances, especially if you are well qualified, sellers are willing to pay for the second appraisal to keep the deal on the table,” says Santana.

To help guard against a lower appraisal, make sure you let the appraiser know the reason you made the offer you did.

“The selling agent should meet the appraiser at the property to provide comparable sales and listings,” says Casey Fleming, a former appraiser.

Try not to pay more than appraised value

You might think you have found the only house you’ll ever love, but with that mindset, you’re liable to get hurt. Try to remove your emotions from the equation. “The euphoria of offering and counteroffering on a home can quickly become buyer’s remorse,” says Nevada real estate professional Bruce Specter

If you do pay more than the appraisal, you’ll spend more than the house is worth. If you wouldn’t pay more than the list price for a car or even for shoes, you generally shouldn’t do so for a house.

Forget about whether you’re in a hot market

Unless cash buyers are ready to swoop in, you can use the low appraisal as an opportunity to renegotiate.

As long as you’re not in a hot market, Tamela Ekstrom, owner of Haven Real Estate in Detroit, says, “the seller will typically drop down and sell for the appraisal amount.” Once people are entrenched in a deal, they usually try to work things out.

Although low appraisals happen, they don’t always mean gloom and doom. How have you handled this situation? Share your stories in the comments below.

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