What Homebuyers Can Expect from an Appraisal — and What to Do If It’s Below Your Offer Price
Introduction
Buying a home is one of the most significant financial investments you’ll make. Before finalizing your purchase, a home appraisal ensures that the property’s value aligns with the agreed purchase price. Since the appraisal affects your mortgage approval, understanding how the process works—and what to do if the value comes in low—can help you navigate this crucial step with confidence.
Key Concepts
Home Appraisal
✔ A professional assessment of a home’s market value, required by lenders.
✔ Conducted by a licensed third-party appraiser with state-issued credentials.
✔ Helps ensure you aren’t overpaying for the home.
Factors That Determine a Home’s Value
✔ Physical attributes (size, age, room count).
✔ Comparable sales in the area.
✔ Condition of the property.
✔ Location and market conditions.
✔ Lot size, upgrades, and amenities.
Appraisal Contingency
✔ Protects buyers if the home’s appraised value is lower than the offer price.
✔ Allows the buyer to renegotiate or cancel the purchase contract without losing their earnest money deposit.
What Is a Home Appraisal and Why Is It Important?
Understanding the Appraisal Process
A home appraisal is a professional valuation of a property, performed by a licensed appraiser, that helps determine its fair market value. Lenders require an appraisal to ensure they aren’t lending more money than the home is worth.
How Appraisals Benefit Buyers
✔ Provides insight into whether the purchase price aligns with market value.
✔ Protects your investment by identifying an overvalued property.
✔ Ensures financing approval, as lenders base loan amounts on the appraised value.
💡 Example: If you offer $350,000 for a home, but the appraisal values it at $330,000, your lender will typically only finance up to the appraised value—which means you’ll need to cover the difference or renegotiate the price.
How the Appraisal Report Is Used
The appraiser submits a detailed report to your lender, which typically includes:
✔ An analysis of the property’s condition and key features.
✔ Comparable home sales (comps) used to determine the valuation.
✔ Photos and supporting market data.
📌 Timeline: The appraisal process usually takes 1–2 weeks, but it may take longer in competitive markets with high demand for appraisals.
📖 Learn More: [Understanding Home Appraisals]
Automated Appraisals: A Faster Alternative?
What Is an Automated Appraisal?
Some homebuyers may qualify for an automated collateral evaluation (ACE) appraisal waiver, which replaces the traditional in-person appraisal with a data-driven valuation model.
Benefits of an Automated Appraisal
✔ Speeds up the closing process by eliminating the need for an in-person inspection.
✔ Reduces closing costs, as there is no appraiser fee.
How to Qualify for an Automated Appraisal
Not all homes qualify for an ACE waiver. To see if you’re eligible, consult with your loan officer before the appraisal process begins.
📖 Learn More: [Appraisal Waivers and Automated Valuations]
What to Do If Your Appraisal Comes in Low
If your appraisal is lower than your offer price, you still have options. Here’s what you can do:
1️⃣ Request a Review or a New Appraisal
✔ Check for errors in the appraisal report (e.g., incorrect square footage, outdated comps).
✔ If you find discrepancies, ask your lender to request a formal reconsideration of value.
📌 Important: A second appraisal is only granted if the initial report is found to have material deficiencies.
2️⃣ Renegotiate the Sales Price
✔ Share the appraisal report with the seller to justify a lower price.
✔ Many sellers will agree to a price reduction rather than risk losing the sale.
3️⃣ Increase Your Down Payment
✔ If the seller won’t lower the price, you can cover the difference out of pocket.
✔ This may increase your home equity and reduce your monthly mortgage payments.
4️⃣ Use Your Appraisal Contingency to Walk Away
✔ If you included an appraisal contingency in your contract, you can withdraw from the purchase without penalty.
✔ Although disappointing, this may be the best option if the home is overpriced.
💡 Example: You agree to buy a home for $400,000, but the appraisal values it at $375,000. Your lender will only finance up to $375,000, leaving you with three choices:
🔹 Renegotiate the price to $375,000.
🔹 Pay the $25,000 difference in cash.
🔹 Use your appraisal contingency to back out of the deal.
📖 Learn More: [How to Navigate a Low Appraisal]
Common Misconceptions
❌ “An appraisal is just for the lender.”
✅ While the lender orders the appraisal, it also protects you from overpaying.
❌ “If a home appraises low, the deal is dead.”
✅ You have multiple options, including renegotiating or increasing your down payment.
❌ “Appraisals and inspections are the same thing.”
✅ An appraisal determines value, while an inspection evaluates the home’s condition.
Practical Applications: How to Handle Appraisal Results
🔹 Review your appraisal report carefully for accuracy.
🔹 Communicate with your lender and real estate agent to determine the best course of action.
🔹 Be prepared to negotiate if the appraisal comes in low.
🔹 Know your financing options—some lenders offer gap financing solutions if you still want to proceed.
Next Steps
✅ Work with your lender to order the home appraisal.
✅ Discuss your options if the appraisal comes in lower than expected.
✅ Use negotiation strategies to secure the best price for the home.
✅ Finalize your financing based on the confirmed appraisal value.
By understanding the appraisal process and preparing for potential outcomes, you’ll be in a strong position to make informed decisions and move forward with confidence in your home purchase. 🏡📊
What Homebuyers Can Expect with an Appraisal — and What to Do If It’s Below Your Offer Price
Buying a home is one of the most important financial investments you’ll make, and getting a professional evaluation of its condition and value before you finalize the purchase is critical.
What’s an Appraisal and Why It’s Important
An appraisal is an opinion of the market value of a home, and it’s performed by a third-party professional with state-issued appraiser credentials.
The main purpose of an appraisal is to help the lender evaluate the collateral for your loan, which is your home. As a homebuyer, you can also use the appraisal report to help decide whether the purchase price you’ve agreed to with the seller is acceptable.
A home appraisal report provides useful information about the property, and the appraiser takes into consideration several items when determining a home’s value, including:
- Basic physical attributes, such as the property size, age and room count.
- Comparable properties within the area.
- Condition.
- Location and market conditions.
- Lot size.
- Upgrades and amenities.
The appraiser provides a report to the lender, and in most cases the lender is required to provide a copy to you. The appraisal report will share the appraiser’s analysis that supports the valuation of the home, and it will include photos and descriptions of comparable home sales.
It can take roughly one to two weeks, or even longer in areas with high appraisal activity, from the time of the initial inspection of the property until you receive the final report.
Your lender is responsible for ordering the appraisal, but you will likely be required to reimburse the lender for the cost, typically as part of your closing costs. Appraisal costs vary greatly by geographic region, but the median cost is $450 to $700.
Ask About Whether You Can Get an Automated Appraisal
If you’re looking to save on closing costs and reduce the time to close on your home, you may be able to trade the in-person appraisal for an automated home assessment.
This alternative to a traditional appraisal is called an automated collateral evaluation (ACE) appraisal waiver. It uses data, analytics and historical information about the property to estimate its value, rather than relying on a standard appraisal.
To see if you qualify for an automated assessment, talk with your loan officer.
My Appraisal Came in Low — Now What?
If the property is appraised at a value that falls below what you’ve offered to pay for the home, you have options:
- If you find errors, request a new appraisal. Thoroughly review the appraisal report to see if key information may be missing. If you feel a new appraisal is warranted, contact your lender. The lender can make the formal request for a second appraisal report, but only when the original appraisal report is deemed materially deficient.
- Renegotiate the sale price. Share the appraisal report with the seller to show the values of comparable homes in the area. This may provide you with an opportunity to renegotiate the sales price.
- Find additional funds. If the seller denies your request to reduce the sales price, consider putting more money toward your down payment. If the appraisal comes in lower than the purchase price, your lender will likely decrease the amount they’ll allow you to borrow. You’ll need to pay more up front to make up the difference between the loan amount and the cost of the home.
- Continue with your search. Your contract should include an appraisal contingency clause, which allows you to cancel the contract. Although walking away from a place you want to call home is hard, the right home for you may be just around the corner.
