You have an accepted offer, and the lender orders an appraisal. This third-party valuation determines whether the home is worth what you agreed to pay. If the appraisal comes in at or above the purchase price, everything proceeds smoothly. If it comes in low, you have a problem — but also options. Here is what to expect.
A home appraisal is an independent assessment of a property's market value conducted by a licensed appraiser. Your mortgage lender requires it to ensure they are not lending more than the home is worth. The appraisal protects the lender — and also protects you from overpaying.
The appraiser is selected by the lender (or an appraisal management company) and must be independent of the transaction. Neither the buyer, seller, nor real estate agents can influence the appraiser's conclusion. The cost is typically $400 to $700, paid by the buyer as part of closing costs.
The appraiser visits the home and evaluates its condition, size, layout, features, and any improvements. They measure the square footage, count bedrooms and bathrooms, note the construction quality, assess the condition of major systems (roof, HVAC, plumbing, electrical), and photograph the interior and exterior.
The primary method of valuation is the sales comparison approach. The appraiser identifies 3 to 6 recently sold homes (within the past 3 to 6 months) that are similar in size, age, condition, and location. They adjust for differences — adding value for extra bedrooms, subtracting for inferior condition — to arrive at a market value estimate.
The appraiser considers the neighborhood quality, school districts, proximity to amenities, and current market trends. A home in a desirable neighborhood with rising values gets a different treatment than an identical home in a declining area.
If the appraised value meets or exceeds your purchase price, the loan proceeds as planned. The lender is satisfied that the collateral supports the loan amount. You may even benefit if the appraisal comes in significantly higher — you are buying below the appraised value, which means instant equity.
A low appraisal means the appraiser believes the home is worth less than the agreed purchase price. This creates a gap: the lender will only lend based on the appraised value, not the contract price. If you offered $350,000 and the appraisal comes in at $330,000, the lender calculates your loan on $330,000.
With 10% down, your loan would be based on $330,000: the lender provides $297,000, and you need $53,000 cash (the $33,000 down payment plus the $20,000 appraisal gap). Without the cash to cover the gap, you need to negotiate.
Ask the seller to reduce the price to the appraised value. Many sellers will agree because a low appraisal will likely affect the next buyer's offer too. Present the appraisal report as evidence — it is an independent, professional opinion of value.
Propose meeting in the middle. If the gap is $20,000, ask the seller to drop $10,000 and you bring an extra $10,000 to closing. This compromise keeps the deal together and shares the pain.
If you believe the appraiser missed relevant comparable sales or made errors, your lender can request a reconsideration of value. Provide specific comps the appraiser may have overlooked and explain why they are relevant. This sometimes results in a revised (higher) value.
If you have the funds and believe the home is worth the agreed price despite the appraisal, you can bring additional cash to cover the gap. This is risky — you are paying more than an independent expert says the home is worth — but makes sense if you plan to stay long-term and the market is competitive.
If your contract includes an appraisal contingency (it should), you can walk away and get your earnest money back. This is a legitimate option if the gap is large and the seller will not negotiate.
While you cannot influence the appraiser directly, you can provide helpful information through your agent: a list of recent comparable sales, details about improvements and upgrades, and neighborhood information the appraiser may not know. The seller should ensure the home is clean and accessible for the visit.
If you are the seller, compile a list of all improvements made with approximate costs and dates. A new roof, HVAC system, or kitchen renovation should be documented. The appraiser is not obligated to factor these in, but the information can support a higher valuation.
The appraisal is a reality check that protects both you and your lender. Most appraisals come in at or above the purchase price, and the process is a non-event. If it comes in low, do not panic. Renegotiate, challenge the value, or walk away. An appraisal contingency in your contract gives you options — never waive it unless you have the cash to cover any gap.