What Are Your Options if a Property Doesn’t Appraise for Value?

Imagine you’ve found your dream home or finally secured a buyer for your property, only to hit a snag when the appraisal comes in lower than the agreed-upon price. It’s a common situation in real estate, but it doesn’t have to spell disaster. Whether you’re a buyer or a seller, there are several ways to navigate this roadblock and still reach a successful closing.

Understanding the Appraisal Gap

An appraisal is an expert’s unbiased estimate of a home’s market value, required by most lenders before approving a mortgage. When the appraisal is lower than the contract price, lenders will only finance up to the appraised value. This creates what’s known as an “appraisal gap.”

Options for Home Buyers

• Renegotiate the Price: One of the most common solutions is to ask the seller to reduce the price to match the appraised value. In many cases, sellers are willing to negotiate rather than risk the deal falling through.
• Pay the Difference: Buyers with extra cash can choose to cover the gap between the appraised value and the purchase price out of pocket. This is more common in competitive markets where bidding wars are frequent.
• Request a Reappraisal: If you believe the appraisal missed key details or comparable sales, you can ask your lender for a second opinion or submit additional information for review.
• Walk Away: If your contract includes an appraisal contingency, you have the option to cancel the purchase and retain your earnest money deposit.
• Negotiate Seller Concessions: Sometimes, buyers and sellers agree on alternative solutions, such as the seller covering closing costs or including personal property to offset the difference.

Options for Home Sellers

• Lower the Sale Price: To keep the transaction moving, sellers can agree to reduce the price to the appraised value.
• Negotiate a Compromise: Meeting the buyer halfway by splitting the difference can be a win-win solution.
• Challenge the Appraisal: If the appraisal seems off, provide additional comparable sales or request a review through your agent.
• Relist the Property: If negotiations fail, you can put the home back on the market and hope for a better outcome with a new buyer or a cash offer.

Why Do Appraisal Gaps Happen?

Appraisal gaps are especially common in fast-moving markets where home prices rise quickly, or when unique property features aren’t fully recognized in the valuation. Sometimes, limited comparable sales in the area can also make it harder for appraisers to justify higher prices.

Tips for Smooth Sailing

• Work closely with a knowledgeable real estate agent who can help you navigate negotiations and provide supporting data.
• Include an appraisal contingency in your contract if you’re a buyer, to protect your earnest money.
• Be prepared to act quickly—time is often of the essence when resolving appraisal issues.

While a low appraisal can feel like a setback, it’s often just another hurdle in the home buying or selling journey. With the right strategy and a little flexibility, you can keep your real estate dreams on track!