Your lender bases your loan on the lower of the price and the appraised value, so a low appraisal leaves a gap that someone has to cover. The usual fixes are to renegotiate the price, pay the gap yourself, split it with the seller, or ask the lender for a reconsideration of value. If your purchase agreement has an appraisal contingency, you may also be able to cancel under its terms.
I'm Wes Johnston, a Realtor with Trueblood Real Estate in Fishers. I'm not a lender, an appraiser or a lawyer. Loan rules come from your lender, and your options under the contract come from your purchase agreement.
Here's the thing: a low appraisal feels like the deal is falling apart, but it often turns into a negotiation. The seller wants to close, you want the house, and the lender needs the numbers to work. Let's take a look at how it plays out.
It's the difference between the price you agreed to and the value the appraiser comes up with, when the appraisal is lower. Say you agree to pay $400,000 and the home appraises at $390,000. That $10,000 is the gap. (Those numbers are only an example.)
It matters because of how your loan is sized. For a purchase, Fannie Mae's rules measure the loan against the lower of the sales price or the appraised value (Fannie Mae Selling Guide B2-1.2-01). Your lender won't lend against the extra $10,000, so it has to come from somewhere else or the price has to change.
The appraiser works from recent closed sales of similar homes nearby. When prices are rising quickly, those sales can trail what buyers are paying today. A home with something unusual, like a big addition, a large lot or custom finishes, may not have close matches. And sometimes the appraiser misses a feature or picks sales that don't compare well.
You have a right to see the report. Federal rules require the lender to give you a copy of the appraisal promptly after it's done, or three business days before closing if that comes first (12 CFR 1002.14). Read it with me. The comparable sales it used tell us whether there's a case to push back.
Yes, and it's usually the first move. We send the seller the appraisal and ask them to lower the price to the appraised value, or to meet somewhere in between. A seller knows the next buyer's lender will likely order an appraisal too, and may land in the same place. That gives you a good reason to ask.
If you have the cash and you want the house, you can pay the difference on top of your down payment. Ask your lender first how it changes your loan, your down payment and your closing costs. Then ask yourself if the house is worth it to you at that price, because you're paying above what the appraiser supported.
A common middle ground is that the seller lowers the price part of the way and you bring cash for the rest. Nobody gets everything, and the deal closes.
It's a term in your purchase agreement that deals with what happens if the home appraises below the price. Depending on how it's written, it can let you renegotiate or cancel within a deadline, and it affects what happens to your earnest money. Read yours before you need it.
Some buyers write an appraisal gap clause into a competitive offer, agreeing ahead of time to cover a low appraisal up to a set dollar amount. It can make an offer stronger, but only commit to an amount you actually have in the bank and would be comfortable paying.
Yes, through a reconsideration of value, or ROV. You ask your lender, not the appraiser, to have the appraisal looked at again. Fannie Mae, Freddie Mac and HUD published standard requirements for borrower-requested ROVs in 2024, and Fannie Mae allows one borrower-requested ROV per appraisal (Fannie Mae: Reconsideration of Value).
An ROV works best when it's specific: comparable sales the appraiser didn't use, or factual errors like the wrong square footage or a missed finished basement. I'll pull the sales and help you put it together. It doesn't always move the number, so keep negotiating with the seller at the same time.
That depends on your purchase agreement. If it has an appraisal contingency, or your financing terms let you out, you may be able to cancel by the deadline and follow the contract's rules for your earnest money. If you waived that protection, walking away can cost you. Government-backed loans can carry their own appraisal rules, so ask your lender. If there's real doubt about your rights, talk to a real estate attorney before the deadline passes.
Start by reading the appraisal. If the comparable sales are weak, request a reconsideration and negotiate with the seller at the same time. If the appraisal looks fair, ask the seller to come down, and be ready to meet in the middle. Only cover the whole gap yourself if you'd still pay that price knowing what the appraiser found. The bottom line: the price has to make sense to you, not only to the lender.
More buyer questions, answered: the steps to buying your first home, how the inspection period works, new construction or resale, how earnest money works, what happens on closing day, and what to know before moving to Indianapolis. Selling? What affects home value explains how comparable sales drive price, and Indiana closing costs covers what changes hands at closing.
Send me the report and the contract dates. I'll look at the comparable sales, tell you whether there's a case for a reconsideration, and help you work out what to ask the seller for.
I'm not a lender or an attorney, and I'll tell you when a question belongs with one.
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Loan questions go to your lender; contract questions may need an attorney.
This page is general information, not financial or legal advice. Loan and appraisal rules vary by lender and loan program; ask your lender. Your options after a low appraisal are set by your purchase agreement.