What happens if your home doesn’t appraise at the contract price? If the appraisal comes in low, it can affect how much the buyer’s lender is willing to finance, which means the buyer and seller may need to figure out how to handle the difference.
This doesn’t happen on every sale, but it does come up. As a seller, the important thing is understanding your options and having a plan before you immediately agree to reduce your price.
What a Low Appraisal Means for Your Home Sale
When a buyer is financing a home, the lender typically orders an appraisal to determine the property’s value. If your home is under contract for $600,000 but the appraisal comes back at $580,000, you now have a $20,000 difference between the contract price and the appraised value.
That doesn’t automatically mean your home is only worth $580,000, and it doesn’t automatically mean you have to lower the price. But it can create a financing issue for the buyer because the lender generally bases the loan on the lower appraised value rather than simply accepting the contract price.
What Happens If the Appraisal Comes in Low?
If your home doesn’t appraise at the contract price, what happens next depends on the contract and how the offer was structured.
There are generally a few possible outcomes:
- The buyer brings additional cash to cover some or all of the appraisal gap.
- The seller agrees to reduce the purchase price.
- The buyer and seller negotiate and meet somewhere in between.
- The transaction may terminate if the contract allows it and an agreement can’t be reached.
This is also why the terms of the offer matter when you’re deciding which offer to accept. A higher purchase price isn’t necessarily the strongest offer if there’s a significant appraisal risk and the buyer hasn’t addressed how they’ll handle it.
Don’t Automatically Reduce Your Price
One mistake a seller can make is seeing a low appraisal and immediately assuming they need to accept that value.
Before making that decision, I want to look closely at the appraisal. Which comparable sales did the appraiser use? Were there relevant sales that weren’t included? Were the home’s condition, upgrades, lot, location, or other important characteristics accounted for appropriately?
If there’s legitimate information that supports a different value, an appraisal reconsideration may be an option. That doesn’t guarantee the value will change, but it gives us a chance to provide additional information and make the case.
What Matters More Is Preparing for the Appraisal
I don’t like waiting for the appraisal to come back before thinking about value. When I represent a seller, I can meet the appraiser at the property and provide relevant comparable sales and information that supports the contract price.
The appraiser still makes an independent determination of value. The goal is to make sure they have useful information about the property and the comparable sales we used when determining the home’s market position.
There can also be additional considerations depending on the buyer’s financing. For example, an FHA appraisal can remain associated with the property for a period of time under applicable FHA rules, which makes it especially important to understand the potential impact before deciding how to respond.
Have a Plan Before You Accept an Offer
A low appraisal can affect a transaction, but your strategy starts before the appraisal is ever ordered. Pricing the home correctly, evaluating the financial strength and terms of each offer, and understanding potential appraisal exposure can put you in a much better position if the value comes in below the contract price.
If you’re thinking about selling your Denver Metro home, this is something to consider while you’re preparing and evaluating your options—not after an appraisal problem appears.
This is where I help sellers protect their position from the beginning.
- We’ll build a pricing strategy supported by relevant comparable sales.
- We’ll evaluate offers for appraisal risk instead of looking at price alone.
- We’ll have a plan for supporting the value and responding if an appraisal comes in low.
If you’re getting ready to sell, reach out before you make a decision on pricing or offers. We’ll go through the numbers and make sure you understand where the appraisal risk could be before it affects your bottom line.
