The Appraisal Came in Low. Now What?

One of the most common moments of anxiety during a home purchase happens quietly - usually a few weeks after an offer is accepted.

The appraisal comes in.

And sometimes… the number is lower than the agreed-upon sales price.

Before panic sets in, it’s important to understand something upfront:

A low appraisal is not uncommon. And it is very manageable.

Let’s walk through what it actually means.

First: What Exactly Is an Appraisal?

An appraisal is an independent professional opinion of a home’s market value.

After a buyer goes under contract, the lender orders an appraisal to confirm that the home is worth the amount being financed. The bank simply wants reassurance that the property supports the loan they’re issuing.

The appraiser evaluates factors such as:

    •    Recent comparable home sales (“comps”)

    •    Square footage and layout

    •    Condition and upgrades

    •    Location and lot characteristics

    •    Current market trends

The result is a written report assigning a market value to the property.

Important Reality Check: Appraisals Are Opinions - Not Exact Science

Here’s something many buyers don’t realize:

If you hired three different licensed appraisers, you could very reasonably receive three different values.

Why?

Because appraisers must interpret comparable sales, adjust for differences, and make judgment calls about market momentum.

Real estate markets, especially competitive ones like Northern New Jersey, move faster than historical data sometimes reflects.

An appraisal is based largely on past sales, while buyers and sellers are often pricing homes based on current demand.

That gap is where discrepancies can occur.

A Real-World Example

Let’s say you agree to purchase a home for:

Contract Price: $850,000

Everything moves smoothly- inspections are complete, mortgage approval is underway - and then the appraisal arrives:

Appraised Value: $830,000

There’s now a $20,000 difference between the agreed purchase price and the appraised value.

So what happens next?

Why This Matters

Your lender typically bases the loan amount on the lower of:

    •    The purchase price

or

    •    The appraised value

So instead of lending against $850,000, the bank now lends against $830,000.

That creates a gap that needs to be addressed before closing.

The Good News: You Have Options

A low appraisal does not automatically kill a deal. In fact, most transactions successfully move forward.

Here are the typical paths:

1. The Seller Adjusts the Price

Sometimes the seller agrees to reduce the purchase price closer to the appraised value.

This often happens when market conditions support negotiation or when both parties want a smooth closing.

2. Buyer and Seller Meet Somewhere in the Middle

A very common outcome.

Using our example:

    •    Seller lowers price slightly

    •    Buyer contributes some additional cash

Both sides share the difference to keep the transaction intact.

3. The Buyer Covers the Gap

If the buyer strongly wants the home, especially in a competitive market, they may choose to bring additional funds to closing, if needed.

This happens frequently when buyers believe the home’s long-term value outweighs a short-term appraisal discrepancy.

Remember:

The appraisal protects the lender - not necessarily the buyer’s personal valuation of the home.

4. Challenge or Reconsider the Appraisal

If meaningful comparable sales were missed or adjustments appear inaccurate, the lender can request a reconsideration of value.

Appraisals are not often dramatically changed, but corrections do occur.

5. Walk Away (If Protected by Contract)

If an appraisal contingency exists and an agreement cannot be reached, buyers may have the option to exit the contract.

This is typically the last resort, and far less common than people assume.

The Bigger Picture

A low appraisal does not mean you overpaid.

It simply means that, based on recent closed sales data, one appraiser arrived at a slightly different valuation on one specific day.

Markets move. Demand fluctuates. Buyer motivation varies.

And ultimately, value is established by what informed buyers are willing to pay over time, not by a single report.

The Role of a Good Agent

This is where experienced representation matters most.

A knowledgeable agent prepares buyers for appraisal outcomes before they happen, structures offers thoughtfully, and helps navigate solutions calmly if challenges arise.

Because in most cases, an appraisal issue isn’t a crisis.

It’s simply another step in the process.

Bottom Line:

A low appraisal is a negotiation moment, not a deal breaker.

With the right expectations and guidance, it’s usually resolved smoothly and professionally.