What Happens if an Appraisal is Lower Than Your Offer?

In Summary:

• If your appraisal comes in below the offer price, lenders typically size the loan to the lower of the appraised value or the purchase price, potentially reducing your financing.
• You can choose to renegotiate or add cash, but sometimes the best option is to exercise the contract's protections and exit.
• Schulte & Co. can guide you through each step of this process and advise you on the best option for your circumstances.

In 2021, the Federal Housing Finance Agency observed that underappraisals increased to 15% of all appraisals amid rapidly rising house prices. While the FHFA states they have returned to more typical figures since then, the original of 7-9% is still a significant number, meaning you should prepare for the possibility of experiencing it yourself. 

So what happens if an appraisal is lower than your offer? What options are available to you, and what should your first steps be?

Below, we discuss how to respond to a low appraisal and how to analyze your situation to prevent you from losing out. Act fast to avoid missed deadlines.

What Happens if an Appraisal Is Lower Than Your Offer?

Start by focusing on your financing. Your lender generally sizes the loan to the lower of the home's appraised value or the price you agreed to pay. If this results in a higher loan-to-value ratio (LTV), it may:

• Make the home harder to afford

• Raise mortgage insurance costs

• Force you to restructure your repayments

• Affect your interest rate

• Reduce eligibility for some loan programs

Then, plan out your next steps to control costs and preserve your protections.

Asking for a Reconsideration

If you continue toward closing, a higher LTV means you will need to close the financing gap with cash unless you renegotiate. As such, consider requesting a Reconsideration of Value (ROV) if you notice significant errors or omissions. 

Your lender can outline the ROV process, then submit the request through them to maintain the appraiser’s independence. Still, it is essential to remember that your request must be supported by evidence and facts, not your opinion of the property's price. As such, we recommend:

• Adhering to all applicable ROV and contract deadlines

• Provide quantitative corrections first (bed/bath count, square footage) with public records

• Supporting qualitative points (condition, materials) with contractor evidence

• Attaching local market trends and recent comparable sales for the appraisal date

Schulte & Co. can help compile this information and add data you cannot source or access directly, such as recent property listings.

Other Options After a Low Appraisal

When the appraisal is less than the purchase price, one option is to pay some or all of the difference (“the appraisal gap”). If necessary, consider adjusting your loan structure to make the repayments easier and lower costs.

Alternatively, negotiating seller concessions or credits can reduce closing costs, freeing up cash. These credits are contributions the seller can make toward agreed closing costs and fees (excluding down payments) and are capped by loan programs. 

If neither of the above resolves the issue, you may need to exit the purchase. Schulte & Co. can offer key advice here, including whether you have any other options in your specific situation and which contract sections are relevant should you choose to exit. If necessary, they can also advise you on finding a real estate attorney for legal advice.

How to Negotiate With the Seller After a Low Appraisal

While you may have hired a professional to negotiate on your behalf, if not, when you sit back down with the seller, ensure you have all the information available to be in a strong position.

Lead the negotiation with data, such as:

• Notes on the condition of the property

• Lender constraints

• Limits on making changes to your financing mid-process

• Share proof of funds to show what is realistic

• Applicable program limits (LTV tiers, credits, etc.)

• Seller net sheets to show the impact of any price cuts or credits

Then, ensure you document any discussions or agreements so that you both have a clear understanding of what is likely to be a challenging process.

Avoid changing your borrower, assets, or debts mid-deal to reduce the likelihood of needing to recalculate the mortgage. Doing this can also save both time and money. Instead, focus on terms that affect loan approval and the home’s value.

You may need to work with your lender to revise the terms and obtain pre-closing approvals in writing. Then, have the seller approve these revised terms so you can keep moving toward a new agreement.

Things to Note in Washington

Many Washington contracts use the forms created by the Northwest Multiple Listing Service (NWMLS). They offer standardized forms to help you structure every step from offer to closing with fewer challenges. 

If an appraisal comes back lower than expected, review the NWMLS Form 22A Financing Addendum and deliver a NWMLS low-appraisal notice through your broker, within the listed timeline. Check with your attorney or real estate broker for the latest versions of these forms.

Washington contracts often include firm deadlines and strict waiver methods. As such, ensure that:

• Obtain extensions in writing before their deadlines to avoid waiving protections

• Confirm each party’s responsibilities in the contract and forms

• Sync lender deadlines with contractual “clocks” to avoid missed dates

• Build time for low-appraisal ROV or renegotiation into contracts where possible

Compare Post-Appraisal Options with Expert Advice

Now you know what happens if an appraisal is lower than your offer, you can be ready to act should you get a surprising result. If you’re still unsure, Schulte & Co. can help by offering advice and handling parts of the purchasing process that you find too challenging.

With our concierge-style process and deep knowledge of Gig Harbor and Washington State real estate, we can provide focused support before and after the appraisal. Contact us today to get us on your team and discover what we can do for you.

FAQs: Low Appraisals in Real Estate

What happens if an appraisal is lower than your offer?

When the appraisal comes in below the offer price, the lender sizes your loan to the lower of the appraised value or contract price. This may increase your loan-to-value ratio, raise mortgage insurance costs, or reduce your financing options, requiring renegotiation or additional cash.

Can you negotiate with the seller after a low appraisal?

Yes. You can request a price reduction, ask for seller credits, or renegotiate terms based on lender limits and market data. Bringing proof of funds, comparable sales, and a clear breakdown of constraints can significantly strengthen your negotiation position.

Can you challenge a low appraisal?

You can request a Reconsideration of Value (ROV) through your lender. To be successful, you must provide factual evidence such as corrected square footage, updated comparable sales, contractor documentation, or market trend data—not opinions about price.

Who pays the appraisal gap?

If lenders finance only up to the appraised value, the buyer typically covers some or all of the appraisal gap with cash. However, buyers may also negotiate concessions or request a revised sales price to reduce or eliminate the gap.

Can a seller back out if the appraisal is low?

In most Washington contracts (NWMLS forms), sellers cannot cancel solely because of a low appraisal, but buyers often have contingencies that allow them to exit. Deadlines and notice procedures are strict, so buyers must send required forms—such as a low-appraisal notice—on time.