My Appraisal Came in Low: What are My Options?


When purchasing a home, your mortgage lender will almost always order an appraisal to verify the property’s worth. Specifically, they want to be sure the home is worth the money they’re lending and, most importantly, that they’ll recoup their investment if you default on the loan.

No matter the market, there is always a risk that an appraisal will come in low. But in a competitive seller’s market, multiple-offer situations can drive up purchase prices, which increases the likelihood of a low appraisal.

But this doesn’t always mean the end of a deal. In fact, there are plenty of actions you can take if an appraisal comes back short.

Exploring the options
Aron Clark, vice president and senior mortgage banker with Dart Bank, explains that when looking at the purchase price and the appraised value, your mortgage provider will lend on the lower of the two amounts.

“If the appraisal comes in lower than the purchase price, buyers essentially have four options — renegotiate, draft a rebuttal, pay the difference, or walk away,” he said.

The first and most common solution is to renegotiate with the seller, asking them to reduce the price or at least split the difference.

The next possible recourse is to draft a written rebuttal, sometimes called a “rebuttal of value” or a “reconsideration letter.”

“If the REALTOR® and/or buyer feels the appraiser overlooked some relevant comps, they can provide additional or new documentation to support the purchase price,” said Clark. “While there have been circumstances in which an appraiser has adjusted their valuation, it doesn’t happen often.”

Buyers can also choose to pay the difference, which tends to happen more frequently in highly competitive markets. If the seller won’t budge on the price, and if the buyer is confident the value is there despite the low appraisal, this may be the way to go.

“But remember, you need to pay the difference on top of your down payment,” said Clark. “If the appraised value is $80,000, but the purchase price is $100,000, you still need your down payment on that $80,000, as well as the $20,000 difference.”

The final option is to simply walk away from the deal altogether. This isn’t the desired outcome for either party, but if the seller isn’t willing to negotiate, and you don’t have the extra cash on hand, it may be the only option.

More on paying the difference
As mentioned, a buyer has the option to make up the difference when an appraisal comes in low. In fact, some buyers are writing in their offers that they will pay a certain amount of the difference should an appraisal come up short.

We already discussed the most straightforward approach. If the purchase price of a home is $200,000, and the appraisal comes back at $190,000, the buyer can pay the extra $10,000 and the deal is done.

But there may also be the option of shifting your down payment money around. For example, let’s say a buyer was planning to put $40,000 down on a $200,000 home (20 percent). If the appraisal comes in $10,000 short, the buyer may be able to take $10,000 of their down payment to make up the difference.

“The downside is that the buyer will have to pay private mortgage insurance (PMI) because they are now putting down less than 20 percent,” said Clark. “And, of course, this arrangement would be subject to the buyer being approved for the lower down payment and the higher loan-to-value ratio.”

Whether you have the extra cash on hand – or you’re able to do some finagling with your down payment – the question is, should you really pay more for a home than the appraised value? While some experts would argue that you should never pay more for a home than what it’s worth, it’s important to remember that appraisals are opinions of value.

“There are many reasons why a buyer may value a home more than an appraiser or a lender,” said Clark. “Close proximity to work, sentimental reasons, or certain amenities like geothermal energy or a swimming pool. Those things don’t necessarily add value from an appraisal standpoint, but they could be extremely valuable to certain buyers.”

And, when making your decision, consider how long you will live in a property. If this is your “forever home,” or you’re at least planning to stick around for a number of years, paying 1 to 5 percent over the appraised value will likely be insignificant 10 to 15 years from now. However, if you plan to move in the next 3 to 5 years, you may run the risk of selling at a loss.

When making a financial decision this large, it’s best to consult your local lender and REALTOR®. They can help you understand the current market and run the numbers to help ensure you are making a wise financial decision. For a list of local experts, visit the Greater Lansing Association of REALTORS® website at