You've negotiated the offer.

The inspection is finished.

Everything seems to be moving toward closing.

Then you get the call:

The appraisal came in low.

Now what?

First, don't automatically assume the deal is dead.

A low appraisal can create a problem, but depending on the financing, contract terms and circumstances, there may be several ways to work through it.

First — What Is the Appraisal Actually Doing?

When a buyer is financing a home, the lender generally wants an independent appraisal to help determine whether the property's value supports the loan.

The appraiser considers things such as:

• Recent comparable sales
• Location
• Size
• Condition
• Features and improvements
• Current market conditions

Here's the important distinction:

The purchase price and appraised value are not necessarily the same thing.

The purchase price is what the buyer and seller agreed to.

The appraisal is an independent opinion of value used by the lender.

So What Happens If It's Low?

Let's say the buyer and seller agree on $400,000.

The appraisal comes back at $390,000.

Now there's a $10,000 appraisal gap to deal with.

What happens next depends heavily on the purchase agreement and financing, but there may be several possibilities.

Option 1 — The Seller Reduces the Price

The seller could agree to lower the purchase price to the appraised value.

Simple.

But the seller isn't necessarily required to do that.

Option 2 — The Buyer Brings Additional Money

Depending on the loan and contract, the buyer may decide to cover some or all of the difference with additional cash.

Option 3 — Meet Somewhere in the Middle

Sometimes neither side wants to lose the transaction.

The buyer and seller may negotiate a compromise and each absorb part of the difference.

Option 4 — Challenge the Appraisal

Sometimes there may be legitimate information worth reviewing.

Was an important comparable sale missed?

Was something about the property incorrect?

Were significant features overlooked?

Depending on the lender's process, there may be an opportunity to request reconsideration with supporting information.

That doesn't mean the appraisal automatically changes.

But it may be worth reviewing.

Option 5 — The Transaction May Not Continue

Depending on the financing and terms of the purchase agreement, a low appraisal can sometimes give the buyer options regarding whether to proceed.

That's why the contract matters.

There's Also a Lesson Before the Offer Is Written

Buyers sometimes think:

"If the seller accepts my offer, the house must be worth that amount."

Not necessarily.

And sellers sometimes think:

"If someone offered it, the appraiser should value it there."

Not necessarily either.

That's why comparable sales and market value still matter—even when buyers are willing to compete for a property.

The Best Time to Think About an Appraisal Problem Is Before It Happens

Before writing or accepting an offer, it's worth understanding:

What happens if the appraisal doesn't support this price?

Because when everyone understands the possibilities ahead of time, there's usually a lot less panic if that call comes later.

If you're buying or selling and trying to understand how an appraisal could affect your transaction, I'm always happy to help you work through the situation.