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What Happens If the Appraisal Comes In Low? Your 5 Options
5 options when appraisal comes in low: (1) Challenge via Reconsideration of Value (ROV) — formalized by FHFA/FHA in May 2024; must cite factual errors or better comps. (2) Seller reduces price to appraised value. (3) Buyer pays gap in cash. (4) Split the gap. (5) Buyer exits via appraisal contingency and recovers earnest money. About 8% of transactions have low appraisals (Fannie Mae). Own Luxury Homes® 12-Point Agent Integrity Audit™.
What Happens If the Appraisal Comes In Low? Your 5 Options
A low appraisal creates an "appraisal gap" — the difference between the purchase price and what the lender will finance. If you offered $420,000 and the appraisal comes in at $400,000, your lender will only approve a loan based on $400,000. The $20,000 gap must be resolved before closing. You have five options.
Option 1: Challenge the Appraisal via Reconsideration of Value (ROV)
A Reconsideration of Value is a formal request for the appraiser to review their conclusion, supported by specific evidence. Since May 2024, when both FHFA (Fannie/Freddie's regulator) and FHA implemented formal ROV guidelines, buyers and sellers have a structured right to submit an ROV with specific evidence. What works in an ROV: documented factual errors in the report (wrong square footage, a room not counted, a bathroom missed), or superior comparable sales that are more similar to the subject property than the comps the appraiser used. The ROV must be evidence-based, not simply a disagreement with the value. What does not work: "We paid more than this" or "the market is hot right now." An appraiser cannot change their opinion based on what the buyer wants to pay or what the seller believes their home is worth. Evidence only.
Option 2: Seller Reduces the Purchase Price
The most straightforward resolution: the seller agrees to reduce the purchase price to the appraised value. From the seller's perspective, this is a real financial cost — but often the pragmatic choice if the alternative is losing the sale and returning to market. Seller calculus: is the price reduction less than the cost of re-listing, carrying the property, and potentially selling for less in a future transaction? In many cases, yes. A $20,000 price reduction today is often better than 60 additional days on market and an eventual sale at the same or lower price to a different buyer.
Option 3: Buyer Pays the Appraisal Gap in Cash
The buyer can make up the difference between the appraised value and the purchase price from their own funds. On a $420,000 purchase with a $400,000 appraisal and a $400,000 loan, the buyer would need to bring an additional $20,000 to closing (in addition to their normal down payment). The risk: without a properly structured appraisal gap coverage clause in the original offer, the buyer may be legally obligated to pay this gap — even if they cannot afford it. Many buyers in competitive markets sign offers with appraisal gap provisions without fully understanding their exposure. Always read your contract's appraisal language before going under contract.
Option 4: Split the Gap
The buyer and seller negotiate a shared resolution: the seller reduces the price by part of the gap and the buyer covers the remaining portion in cash. This is often the most successful negotiating outcome because both parties absorb part of the cost while the transaction survives. Example: $20,000 gap. Seller reduces price by $10,000; buyer covers $10,000 in cash. Both move forward. The split does not have to be equal — it is negotiated based on each party's motivation, the state of the market, and whether other buyers are likely to exist.
Option 5: Buyer Exits via Appraisal Contingency
If the purchase agreement includes an appraisal contingency (which most standard contracts do unless specifically waived), the buyer may exit the contract and recover their earnest money in full if the appraisal comes in below the purchase price. The appraisal contingency is a valuable protection that should only be waived with clear understanding of the financial exposure. In competitive markets, some buyers waive appraisal contingencies to strengthen their offers. If the appraisal then comes in low and they have no contingency protection, they must either pay the full gap or lose their earnest money by backing out.
“The decision framework when a low appraisal hits: first, assess whether the ROV has merit — are there factual errors in the report or clearly better comps that were not used? If yes, file it immediately while also pursuing Option 2 in parallel. Second, assess the seller's motivation: are they flexible on price? Third, assess the buyer's liquidity: can they cover all or part of the gap? Most low appraisal situations resolve through some combination of Options 2, 3, and 4. Option 1 is valuable when you have genuine grounds. Option 5 is the protection that prevents a bad outcome when all other options fail.”
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes®
What happens if the appraisal is lower than the offer price?
The lender will only approve a loan based on the appraised value, not the purchase price. If you offered $420,000 and the appraisal is $400,000, your lender bases the loan on $400,000. This creates a $20,000 appraisal gap that must be resolved through one of five options: (1) challenge the appraisal via Reconsideration of Value; (2) renegotiate the price with the seller; (3) buyer pays the gap in cash; (4) split the gap between buyer and seller; or (5) buyer exits via appraisal contingency and recovers earnest money. About 8% of transactions experience low appraisals (Fannie Mae research).
Can a seller refuse to lower the price after a low appraisal?
Yes. A seller is under no legal obligation to reduce the price based on a low appraisal. If the seller refuses to reduce the price and the buyer cannot or will not pay the appraisal gap in cash, the outcome depends on whether the buyer has an appraisal contingency. With an appraisal contingency: the buyer can exit and recover their earnest money. Without an appraisal contingency (waived in competitive markets): the buyer must either pay the full gap or lose their earnest money by backing out. This is the risk buyers accept when waiving the appraisal contingency.
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"The introduction Own Luxury Homes® makes is to a specialist with documented closing history in your specific market — not the county, not the metro, the submarket you're actually selling or buying in. That's the standard we verify before your name goes anywhere."
— Ryan Brown, Principal Broker & CEO, Own Luxury Homes® (FL License BK3626873)