What Happens If My Appraisal Comes in Low?

The email lands mid-week, usually without warning, and the number in it is smaller than the number on your contract. You’re under contract at $700,000 and the appraisal says $675,000.

The first thing to know is that this is ordinary. In a typical year, somewhere around one in ten purchase appraisals comes in under the contract price, and the overwhelming majority of those deals still close. What follows is a negotiation. But you have a limited window and a handful of choices, so it helps to understand the math before you’re asked to decide.

What the gap actually costs you

Your lender lends against the lower of the purchase price or the appraised value. That single rule is the whole problem.

At $700,000 with 20% down, you were putting in $140,000 and borrowing $560,000. Now the value is $675,000, so the lender measures your loan against that. A $560,000 loan on a $675,000 value is about 83% loan-to-value, which is over the 80% line, which means mortgage insurance you weren’t planning on.

To hold your 20% equity position, your loan has to come down to $540,000, so you’d bring $160,000 instead of $140,000. Notice what that means. You don’t need the full $25,000 gap in cash. You need $20,000. The gap gets covered proportionally, and people routinely over-budget for this by thousands of dollars.

All of that assumes you want to preserve your down payment structure. If you were putting 5% down and mortgage insurance was always part of the plan, the arithmetic is gentler.

Your five real options

There are exactly five directions this goes, and they’re often combined.

• Ask the seller to reduce the price to the appraised value. This is the most common outcome and the cleanest one, because if the appraisal is well supported, the seller’s next buyer will likely hit the same number.
• Split the difference. Seller comes down $12,500, you bring $12,500. This closes a lot of deals because it lets both sides feel like they held the line.
• Bring the cash yourself. Fine if you have reserves left afterward, and a bad idea if it drains your emergency fund to zero the week you take on a mortgage.
• Challenge the report through your lender, which I’ll get to in a moment.
• Cancel. If you have an appraisal contingency and you’re still inside it, you walk and your earnest money comes back.

Who can push, and how hard

This is the part that gets missed, and it decides how much room you have.

Everything rests on whether your appraisal contingency is still active. In most contracts it’s a separate clause from your financing contingency, and it usually runs on a shorter clock, sometimes 17 days in California. If it’s live, you can walk with your deposit intact, and the seller knows it. If you waived it to win a bidding war, or the deadline passed while you were waiting on the report, you’re contractually on the hook for the price and your only real move is asking nicely.

Now think about the seller’s side, because what constrains them is what a fresh start actually costs. Relisting means weeks back on the market, a new escrow, and a buyer who might land on the same value. If your loan is FHA, the appraised value stays attached to the property for a stretch, commonly 120 days, so the next FHA buyer could inherit exactly this number. On conventional financing the appraisal belongs to the lender who ordered it, so a different buyer with a different lender starts clean, which gives the seller more reason to test the market.

Ask me which situation you’re in before you make an offer on the gap. It changes the whole conversation.

Challenging the number

You have a formal right to ask the appraiser to look again, and most buyers don’t know it exists. It’s called a reconsideration of value, and it’s routed through your lender rather than sent to the appraiser directly.

Since the shared standards Fannie Mae, Freddie Mac, and HUD put in place in 2024, your lender must hand you written instructions on how to file one when the report is delivered. You get one per appraisal, and it cannot be billed to you.

What makes the request work is evidence. Bring specific closed comparable sales the appraiser didn’t use and explain why each is a better match than what they chose. Point out factual errors: wrong square footage, a bathroom miscounted, a finished basement listed as unfinished, the assumption that your street is busier than it is. Grounds also include an appraisal you believe was affected by prohibited bias.

What doesn’t work is “we think it’s worth more,” or a list of active listings. Asking prices don’t establish value; closed sales do. Your agent is usually the right person to assemble the comps, and I’ll route the package. Values do move on a well-built request. Not most of the time, but often enough that it’s worth the two days.

What I’d tell you to do first

Before anyone talks about money, read the report.

Look at the comparable sales the appraiser chose. Are they really your neighborhood, or did they reach a mile out? Are they recent? Did they credit the renovated kitchen, the permitted addition, the extra bathroom? A surprising share of low appraisals trace back to a factual error or a comp selection that a local agent can see is off immediately, and that’s a fixable problem rather than a negotiating one.

Then call me before you respond to the seller. There’s often a restructuring available, a different down payment, a different loan program, that changes what the gap costs you.

The bottom line

A low appraisal opens a negotiation rather than ending one. Your lender lends against the lower number, but the cash you need to bridge it is smaller than the gap itself. You can renegotiate, split it, fund it, dispute it, or leave, and which of those is realistic comes down to whether your appraisal contingency is still alive. Read the report first, look hard at the comps, and don’t let deadline pressure push you into wiring money you’ll need in six months.

Ready to learn more?

If your appraisal came back short, or you’re writing an offer and want to understand your exposure before you waive anything, I’d be honored to look at your numbers with you and talk through what your options really are.