5 Ways to Deal with a Low Appraisal

A home appraisal can make or break a real estate transaction. When an appraiser values a property for less than the agreed-upon contract price, both buyers and sellers are faced with a difficult situation: how do you move forward? Low appraisals are more common than many people think, especially in competitive markets where buyers are willing to pay top dollar.

Fortunately, there are several strategies for how to handle a low appraisal without derailing the deal. Below are five approaches that buyers and sellers can consider, along with tips for navigating the process successfully.

1. Lower the Price to Match the Appraised Value

One of the most straightforward solutions is for the seller to reduce the asking price to meet the appraised value. While this option doesn’t require negotiation with the buyer or lender, it does come at a financial cost to the seller.

Lowering the price ensures the transaction moves forward smoothly, since the lender will approve financing at the appraised value. However, sellers should weigh whether the quick sale is worth potentially leaving money on the table—especially in markets where new buyers may be willing to pay more.

2. The Buyer Makes Up the Difference to deal with a Low appraisal

In some cases, the buyer has the financial ability and willingness to cover the gap between the appraised value and the contract price. This can happen if the buyer believes strongly in the long-term value of the home or if the property has unique features not fully captured in the appraisal.

By bringing additional cash to the table, the buyer can increase their down payment so the lender is comfortable approving the loan. While this requires extra funds upfront, it may be worthwhile for buyers who don’t want to lose out on their dream home.

3. Meet in the Middle

When both parties want the sale to succeed, compromise is often the best path forward. Splitting the difference between the appraised value and the original contract price allows the buyer to reduce their out-of-pocket costs while giving the seller more than the appraised amount.

This approach requires good communication and a willingness from both sides to negotiate in good faith. While neither party gets everything they want, meeting halfway can save time, reduce stress, and prevent the deal from falling apart entirely.

4. Challenge the Appraisal

Another option is to challenge the appraisal itself. While this process can be difficult, it is sometimes successful—particularly if there are clear errors or if relevant comparable sales (“comps”) were overlooked.

It’s important to note that only the lender can request a review or order a second appraisal, and this must be initiated by the buyer, not the seller. The buyer would need to work with their lender to present evidence, such as recent comparable sales, renovations that weren’t factored in, or data that shows the property is worth more than the initial valuation.

Although challenging an appraisal doesn’t guarantee success, it’s worth pursuing if both parties believe the appraiser undervalued the property.

5. Put the House Back on the Market

If all else fails, sellers can walk away from the current deal and relist the home. This option comes with risks, including the possibility of facing the same appraisal issue again—particularly if the new buyer’s lender uses the same or similar valuation methods.

For FHA loans, the appraisal remains attached to the property for 120 days, which can complicate things for sellers looking for a quick turnaround. However, if a cash buyer or conventional loan borrower comes along, the property may sell without the same appraisal roadblocks.

Relisting can be frustrating, but in some cases it allows sellers to ultimately secure a stronger offer or a more favorable financing situation.

Final Thoughts on How to Handle a Low Appraisal

Low appraisals are an unavoidable part of real estate, and they can be challenging for both buyers and sellers. But understanding your options—whether it’s adjusting the price, negotiating, challenging the appraisal, or going back to market—gives you the tools to navigate the situation with confidence.

Remember, the best approach often depends on the specific circumstances, the local market, and the willingness of both parties to cooperate.

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Author bio: Michael Davis, a real estate expert with over 10 years of experience, specializes in market trends and investment strategies, offering valuable insights to both new and seasoned real estate professionals through his informative articles.