What Happens When an Appraisal Comes in Below the Purchase Price?
Getting the appraisal back and seeing a number lower than the agreed price can feel like the deal is over. In practice, it’s usually the start of a negotiation rather than the end of one.
The short answer
When an appraisal comes in below the purchase price, the lender will only finance the loan based on the lower appraised value, leaving a shortfall that has to be resolved before closing. The main paths forward are renegotiating the price down, having the buyer cover the difference in cash, formally challenging the appraisal, or canceling the contract if a relevant contingency allows it. Which option makes sense depends on how motivated each side is, how large the gap is, and what the contract already says.
Renegotiating the price
The most common resolution is a conversation between buyer and seller about splitting or fully closing the appraisal gap by adjusting the contract price closer to the appraised value. A seller who’s already committed to moving, or who worries a second buyer might hit the same low appraisal, may be willing to come down rather than restart the search. There’s no assurance this happens, though — a seller with other interested buyers waiting has less incentive to negotiate at all.
Covering the gap in cash
Because the loan amount is tied to the lower of price or appraised value, a buyer who wants to keep the original price intact can bring additional cash to closing to make up the difference. This effectively increases the buyer’s real down payment beyond what was originally planned, which changes their overall math even if the interest rate and loan terms stay the same. Buyers considering this route generally want to be confident the higher price still makes sense for them personally, independent of what the appraisal says.
Challenging the value
- Requesting a review. A buyer can ask their lender to submit a reconsideration of value if there’s a specific, documented reason to believe the appraisal missed relevant facts or comparable sales.
- Providing additional data. Agents sometimes supply their own list of comparable sales that support a higher value, though the appraiser isn’t obligated to change their conclusion.
- Ordering a second appraisal. In some cases, a lender may allow or require a completely separate appraisal, though this adds time and sometimes an additional fee.
Walking away from the deal
If the parties can’t agree on a new price and the buyer isn’t willing or able to cover the shortfall, an appraisal contingency, if one exists in the contract, typically allows the buyer to cancel and recover their earnest money deposit. Without that protection in place, backing out over a low appraisal can risk forfeiting the deposit, which is part of why the presence or absence of this specific contingency matters so much before a contract is even signed.
How this affects loan-to-value
A lower appraised value doesn’t just threaten the deal itself — it also shifts the loan-to-value ratio the lender uses to size the loan, which can affect required down payment percentages or trigger different mortgage insurance requirements depending on how the numbers land.
The takeaway
A low appraisal changes the math of a deal, but it rarely has to end it outright. Knowing which of these paths is realistic — a price adjustment, extra cash, a formal challenge, or an exit — before the appraisal even comes back makes the moment far less stressful when it happens.