What is an appraisal, and why does it matter?

An appraisal is a professional evaluation of a property’s value, usually ordered by the lender during the mortgage process. The lender uses the appraisal to determine how much they’re willing to lend.

If the appraised value comes in lower than the agreed-upon purchase price, the lender will only finance up to the appraised amount — not the full purchase price. This creates a financing gap that needs to be addressed before the deal can close.

Why it matters:

• If the appraisal comes in low, it can disrupt the deal since most buyers don’t have extra cash to cover the difference.
• It can also give buyers an opportunity to renegotiate the price or terms with the seller.
• A low appraisal might signal that you’re overpaying for the property, which could affect your future equity and resale value.

What you can do if the appraisal comes in low:

• Negotiate with the seller – You can ask the seller to lower the price to match the appraised value.
• Cover the gap in cash – If you still want the property, you can agree to pay the difference between the appraisal and the purchase price out of pocket.
• Split the difference – You and the seller could agree to meet halfway, with the seller reducing the price and you contributing additional funds.
• Challenge the appraisal – If you believe the appraisal was inaccurate, you can request a second opinion or provide additional data (such as better comparable sales).
• Walk away – If the contract includes an appraisal contingency, you can usually walk away without penalty if the appraisal is too low.

How to prepare for this scenario:

• Include an appraisal contingency in your offer — This gives you the option to back out or renegotiate if the appraisal is lower than expected.
• Have extra funds available — If you’re in a competitive market, being able to cover a gap could strengthen your offer.
• Work with an experienced agent — A good agent can help you analyze the appraisal report, find comparable sales, and negotiate effectively with the seller.

One of my favorite lenders, Corey Gee with Cross Country Mortgage, and I sat down for an interview:

Q: If the appraisal is under purchase price, and the buyer has waived or had an amount that would pay over, is there any way to put that money into the loan instead of being cash out of pocket?
A: Depends. This is definitely an important part of our pre-purchase consultation. If you are maxed at 97% LTV (loan to value) based on the loan program, but you are intended to put down 20%, well then it's easier to waive the financing contingency. If the value comes in low, you would have the opportunity to bring the difference to the table to remain at 80% LTV, or you can simply add some PMI.

Q: Anything you suggest that a seller can do to maximize an appraisal?
A: Curb appeal certainly has some impact, but I would make sure that the property is in good working order, no visible defects, and to prepare a list of improvements or additions made. If selling an investment property, be sure you provide valid lease agreements so they can prepare an accurate income approach.