Low Appraisal? Here’s How to Handle It Without Losing the Deal

What To Do When You’re Faced With a Low Appraisal

Have you ever been in a situation where you’ve found the perfect house, gotten your offer accepted, and everything seems to be moving along? Then the report comes back, and you’re hit with a low appraisal.

What now?

This is one of the most common situations that buyers and even real estate agents run into. It can be stressful, but never forget that you do have options. As an appraiser, I’ve seen how this plays out from the appraiser’s perspective, and it helps to understand what’s really happening so you can figure out your next step.

Let’s go through it together.

Why Do Appraisals Come in Low?

The appraiser’s job is to figure out what the property is worth in today’s market. We base that number on sales and listings of similar homes in the area, along with the property’s condition and features.

Sometimes buyers offer more than the sales data supports, especially in competitive markets. That doesn’t mean the appraiser is “wrong” or trying to ruin your deal. It just means the recent sales and listings don’t currently support that contract price.

For sellers and listing agents, this is where setting the right list price matters. Recent updates or renovations can help a home sell, but cost does not always equal value. Spending $40,000 on a kitchen remodel doesn’t automatically mean your home is worth $40,000 more — the adjustment in the appraisal will be based on what similar homes with updated kitchens have actually sold for, not what you spent.

Also, be careful about pricing your home based on a recent sale in the same neighborhood without first checking whether it’s truly comparable. Being in the same subdivision doesn’t make it a comp. It needs to be similar in size, age, condition, and features. If that other sale had more square footage, a larger lot, or high-end finishes your home doesn’t have, it won’t support the same value in an appraisal.

I had this occur several years ago when a seller set their list price based on what another home in the neighborhood sold for, without any regard for the physical differences between the two homes. After I verified all of the information about the sale, it turned out that the sold home was much bigger and actually indicated a lower price for the subject property.

First: Look Closely at the Appraisal

Start by reviewing the report with your agent. Look at which sales the appraiser used. Were they truly comparable? Were any recent sales missed? Did the appraiser overlook upgrades?

Sometimes there’s nothing wrong, but once in a while, something was missed — like a sale that closed right before the appraisal was done. Sometimes there’s a private sale that was missed, so if you know of a recent FSBO sale in your neighborhood, let the appraiser know upfront so they can at least consider it.

If you and your agent find something solid, you can ask the lender to submit that information to the appraiser for review with what’s called a Reconsideration of Value (ROV).

What the Appraiser Actually Does

When a reconsideration request comes in, the appraiser is required to review it. If the new information is truly relevant, the report can be updated.

But keep this in mind:
— The new sales have to be real comparables — similar in size, age, condition, and location.
— They have to be closed sales, not listings or pending contracts. While these types of transactions can be included, a closed sale is your best bet for getting the value changed.
— The appraiser can’t just “raise the value” to make the deal work. Any change has to be supported by real sales data.

If the new evidence doesn’t hold up, the value won’t change.

If the Value Still Stands

Here are your other options if the appraisal stays the same and the seller won’t lower the price:

Negotiate a Split
Sometimes, buyer and seller agree to meet in the middle. Maybe the seller drops the price partway, and you cover the rest.

Pay the Difference
If you have the cash and still want the house at the contract price, you can pay the difference out of pocket. Just make sure your loan program still works with the adjusted down payment.

Walk Away
If neither of those options work for you — and the seller won’t budge — you may need to cancel the contract and keep looking.

• Quick Summary of Your Options
• Review the appraisal and check for mistakes
• Submit better comps to the lender for reconsideration
• Negotiate with the seller to lower the price
• Meet in the middle (you and the seller each cover part of the gap)
• Pay the difference yourself
• Walk away if you need to

How to Avoid This Situation

Here are a few simple steps that can help keep you out of this spot:

• If you’re planning to offer over asking, have your agent show you the most recent comparable sales first.
• If the home has special features or upgrades, make sure your agent documents those so the appraiser can see them.
  If you’re the seller, get an honest opinion of your home’s market value before listing. A pre-listing appraisal can be especially helpful if you’ve made recent improvements or your neighborhood has a wide range of home styles and conditions. This can prevent overpricing and help avoid an unpleasant surprise when the buyer’s appraisal comes in.
• Keep in mind that the appraisal protects both you and the lender from overpaying.

Final Thoughts

A low appraisal isn’t the end of the road, but it does force a decision.

If you’re in this situation, stay calm, stick to the facts, and make the choice that’s right for you.

If you’re a seller or listing agent, remember: price your home based on what the market data supports, not just on what you’ve spent or what your neighbor got. The closer your list price is to the appraised value, the smoother the transaction will be.

If you have further questions about a low appraisal, feel free to reach out. I’m happy to explain things in plain language and help you understand what your options really are. As always, thanks for reading.

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