When buying or selling a home, the home appraisal process plays a crucial role in determining the property’s fair market value. But what happens if the appraisal doesn’t align with the agreed-upon price? A value that comes in too high or too low can impact financing, negotiations, and even the final sale.

Whether you’re a buyer wondering how to handle a low appraisal or a homeowner looking to refinance, understanding how appraisals work can help you make informed decisions. In this guide, we’ll break down what to do when an appraisal doesn’t match expectations—and how to navigate the next steps with confidence.

What Happens When the Home Appraisal Doesn’t Match Your Offer?

Picture this: after rounds of negotiations, you and the seller finally settle on a price for your dream home. It’s the perfect balance—where your top offer meets the seller’s lowest acceptable price. But this isn’t just about numbers; it’s a process that ultimately determines the home’s fair market value.

Now, think back to the start of your home search. You sit down with your real estate agent, excitedly outlining your must-haves—how many bedrooms, the ideal location, and, most importantly, your budget. Your agent then shows you homes that check all the boxes. But before making an offer, it’s crucial to understand what you can truly afford based on both your finances and the property’s potential value.

The first step in this journey is securing a pre-approval letter from a mortgage lender. This document, based on your income and expenses, tells you the maximum loan amount you qualify for. Think of it as your golden ticket—it signals to sellers that you’re a serious buyer with financing in place, making your offer more competitive. However, even with a pre-approval, the final piece of the puzzle is the home appraisal.

For first-time buyers especially, the excitement of finding “the one” can lead to offering more than the asking price, hoping to outbid the competition. While sellers may be eager to accept, a problem arises if the home appraisal comes in lower than your agreed-upon price. This gap between the appraised value and your offer can affect your loan approval and overall financing strategy, making it essential to prepare for this possibility before you buy.

The Appraiser Does Their Research

When a home appraisal is conducted, the appraiser starts by reviewing the sales contract. This is the foundation of their detailed analysis, where they dig into public records and recent sales data of similar homes in the area. Their goal is to find three to four comparable properties that closely match the home being evaluated.

How the Appraiser Determines Value

The valuation process follows a structured approach:

• Analyzing Price Per Square Foot – The appraiser calculates the value based on comparable homes and their selling prices.
• Making Adjustments for Differences – Since no two homes are identical, the appraiser factors in key variations, including:
  • Lot size and overall land value
  • Landscaping and curb appeal
  • Special features like a swimming pool or outdoor living space
  • Interior upgrades, such as modern kitchens or newly renovated bathrooms
  • The general condition and upkeep of the home

Because every property has unique characteristics, adjustments are necessary to provide the most accurate valuation. By carefully evaluating these details, the appraiser ensures the home appraisal reflects the true market worth of the property, helping buyers and lenders make informed decisions.

What Happens When the Home Appraisal Comes in Higher?

In most real estate transactions, the appraised value of a home typically aligns with the agreed-upon sales price. This is because home prices generally reflect current market conditions, ensuring that buyers and sellers settle on a fair number.

However, home appraisals don’t always match expectations. Sometimes, the appraised value comes in higher than the contract price, while other times, it falls short. Both situations have unique implications for buyers, sellers, and even homeowners looking to refinance.

How a Higher Appraisal Affects Refinancing

For homeowners refinancing their mortgage, a higher appraisal can work to their advantage. Many loan programs adjust interest rates based on the loan-to-value (LTV) ratio, a process known as ‘loan level pricing adjustment.’ A higher appraised value lowers this ratio, potentially leading to a better interest rate. Additionally, if you’re considering a cash-out refinance, a higher appraisal could increase the amount of equity you can tap into, putting more cash in your pocket at closing.

What It Means for Homebuyers

For those purchasing a home, a higher appraisal doesn’t significantly change the loan structure. Lenders base their financing on the lower of two values: the appraised value or the contract price. Even if the appraisal is higher than the sales price, buyers cannot use the extra value to increase their loan amount or reduce their required down payment.

That said, a higher appraisal is still a positive outcome—it suggests that the buyers are getting a great deal, purchasing the home for less than its market value. This could mean instant equity and a stronger financial position from day one. On the other hand, if the appraisal falls below the offer price, the impact is more immediate, potentially requiring buyers to renegotiate or come up with additional funds.

Understanding how a home appraisal influences your purchase or refinance can help you navigate the process with confidence, ensuring you make the most informed financial decisions.

What Happens if the Home Appraisal Is Lower Than Your Offer?

Imagine you’ve made an offer for a home you’re eager to buy, and after the appraisal, the value comes back lower than your agreed purchase price. This scenario can create a challenge, but it doesn’t necessarily mean the deal is doomed.

How Lenders Handle a Low Appraisal

When an appraisal comes in lower than the offer, lenders will base the loan amount on the lower of two values: the appraised value or the sales price. This means buyers may need to cover the difference between the appraisal and the offer amount, either by coming up with extra funds or negotiating a lower purchase price with the seller.

Your Options in This Situation 

If the appraisal doesn’t match your offer, here are a few options:

• Cover the Difference – Buyers can pay the gap themselves, bringing additional funds to closing.
• Negotiate with the Seller – Buyers may ask the seller to reduce the price to match the appraised value, potentially avoiding any extra costs.
• Challenge the Appraisal – If the buyer feels the appraisal was inaccurate, they can request a second appraisal or provide additional market data to support a higher value.
• Walk Away – Many contracts include an appraisal contingency, allowing buyers to back out of the deal without losing their earnest money deposit if the appraisal doesn’t match the offer price.

If the seller isn’t willing to adjust the price and the buyer can’t cover the difference, the deal might fall through. While this can be a setback, it also ensures that the buyer doesn’t overpay for a property.

Though a low appraisal can be frustrating, understanding your options can help you make the right decision for your financial situation and move forward with confidence.

Mastering the Appraisal Process

When buying or selling a home, navigating the appraisal process is essential, as it helps determine the property’s true market value. Understanding this value is crucial for both buyers and sellers, ensuring that everyone is on the same page when it comes to pricing.

The appraisal isn’t just another obstacle to overcome—it’s a vital tool designed to bring fairness and transparency to the transaction. With the right knowledge and guidance, you can confidently navigate this process and avoid potential pitfalls.

Ultimately, the appraisal helps establish a fair price for both sides, providing a clearer path to closing. By understanding the process and being well-prepared, you can ensure a successful outcome in your real estate transaction. Whether you’re buying or selling, this step is key to a smooth journey. Happy house hunting or selling!

Why Choose Block Appraisals for Home Appraisals?

At Block Appraisals, we are committed to providing accurate and reliable real estate valuations across New York City. With deep expertise in the local market, we help homeowners, investors, attorneys, and financial institutions make informed decisions through our comprehensive appraisal services. Whether you need a pre-sale or pre-purchase appraisal, estate and probate valuation, divorce appraisal, tax grievance appeal, or investment property valuation, we’ve got you covered.

What sets us apart is our commitment to precision and transparency. We conduct thorough market research, analyzing property conditions, sales trends, and local influences to deliver fair, data-backed valuations. Our detailed reports provide clear insights, ensuring our clients have the information they need to navigate important financial decisions with confidence.

Led by Scott S. Block, a certified real estate appraiser and Appraisal Institute affiliate, we uphold the highest ethical and professional standards. Our team stays ahead of market trends and follows industry best practices to provide the most accurate assessments.

Whether you’re buying, selling, investing, or handling a legal matter, you can trust us for expert property valuations. Contact us today to schedule your appraisal!

Conclusion

Navigating the home appraisal process can be challenging, especially when the appraised value doesn’t match expectations. Whether the appraisal comes in too high or too low, understanding its impact on financing, negotiations, and overall property value is key to making informed decisions. By being prepared for different scenarios—such as renegotiating, challenging an appraisal, or exploring refinancing options—you can take proactive steps to secure the best outcome.

At Block Appraisals, we provide accurate, data-driven valuations to help buyers, sellers, and homeowners navigate their real estate transactions with confidence. Contact us today to schedule a professional appraisal and gain clarity on your property’s true market value.

Frequently Asked Questions (FAQs)

Can I dispute a home appraisal if I think it’s inaccurate?
Yes, you can challenge an appraisal by providing additional comparable sales data, pointing out overlooked property features, or requesting a second appraisal. Work with your real estate agent or lender to make a strong case.

Does a higher appraisal affect my mortgage loan?
For buyers, a higher appraisal typically doesn’t change the loan amount, as lenders base financing on the lower of the purchase price or appraised value. However, for homeowners refinancing, a higher appraisal can lead to better loan terms or increased cash-out equity.

How does an appraiser determine a home’s value?
Appraisers analyze comparable sales, property condition, square footage, location, upgrades, and market trends to establish a fair market value. They adjust for differences between properties to ensure an accurate valuation.

Can a low appraisal be a deal-breaker?
Yes, a low appraisal may disrupt financing if the buyer lacks funds to cover the gap or the seller won’t adjust.. However, buyers can negotiate, dispute the appraisal, or explore alternative financing options.

What happens if a home appraisal is higher than expected?
A higher appraisal means the buyer is getting a great deal with instant equity. For homeowners refinancing, it can lead to better loan terms or increased borrowing power. However, it doesn’t usually impact the buyer’s mortgage terms.

Users Also Say

What happens when a home appraisal comes in low?

Chris B****y

Generally, the lender will base the loan on the lower amount. If the appraisal comes in below the sales price, they’ll only approve the lower appraisal value. This is why you’re seeing contracts with an addendum that specifies the seller won’t lower the price, even if the appraisal falls short. The seller typically requires proof that the buyer has the necessary assets to cover the difference. If the buyer cannot make up the gap, the seller may choose to accept another offer.