Low Appraisal: What to Do When a Home Appraises Below Price

A low appraisal means the appraiser valued the home below your contract price, so your lender will size the loan on the lower number. You can ask the seller to lower the price, challenge the value, cover the gap in cash, change your loan, or cancel under an appraisal contingency. Because contract deadlines can be short, start with the steps that cost nothing.

What a low appraisal means for your loan

Lenders calculate your loan-to-value ratio (LTV), the loan amount divided by the home’s value, from the lower of the price or the appraisal. That is the rule in Fannie Mae’s Selling Guide, and FHA and VA work the same way. So the loan your lender approved at the contract price shrinks, while the seller still expects the full price at closing.

That shortfall is the appraisal gap. Your options, in the order to work through them:

1. Negotiate a lower price with the seller, or ask the seller to split the gap.
2. Challenge the appraisal with a reconsideration of value (ROV).
3. Cover the gap with extra cash.
4. Change the loan, for example a smaller down payment percentage with more mortgage insurance.
5. Walk away if your contract has an appraisal contingency.

You can combine them, so compare what each path does to your cash at closing and your monthly payment.

Why appraisals come in low

An appraiser estimates market value mainly from comparable sales, or “comps”: similar nearby homes that sold recently. A low appraisal usually traces back to one of these causes:

• Prices rising faster than closed sales. Comps closed weeks or months before your contract, so they can lag a fast market.
• Weak or distant comps. Unusual homes, rural areas and small markets have fewer good matches.
• Missed features. Wrong square footage, a missed bedroom, or an uncounted renovation can pull the value down.
• An overpriced contract. Sometimes the appraisal is right and the price is high.

Low appraisals happen in a minority of purchases. In June 2024, 8.6% of home sales in the closing process appraised below the contract price, down from 10.7% in June 2023, according to Cotality (formerly CoreLogic).

Low appraisal in a hot market

Competitive markets can make a gap more likely. When buyers bid over asking, the contract price can jump past the most recent closed sales. The appraiser has to support value with those older sales, so the gap shows up at the appraisal. In that case, ask your agent how recent offers compare with closed prices.

Your options after a low appraisal, with the math

Every example below uses the same hypothetical numbers: a $400,000 contract price, a $380,000 appraisal, and a buyer who planned to put 10% down. Closing costs, prepaid items and reserves are left out.

At the contract price, 10% down is $40,000 and the loan is $360,000. After the appraisal, the lender caps a 90% loan at 90% of $380,000, or $342,000.

1. Negotiate the price with the seller

Asking the seller to cut the price to the appraised value is the cleanest fix. If the seller agrees to $380,000, you put $38,000 down on a $342,000 loan. That is $2,000 less cash than you planned.

A seller may counter by splitting the gap. At $390,000, you still borrow $342,000, so you bring $48,000: the $10,000 gap plus $38,000 down. That is $8,000 more than planned.

Your leverage: if the comparable sales do not change, the next financed buyer’s lender may reach a similar value. A seller whose home has sat for weeks may have more reason to bend than one with backup offers.

2. Challenge the appraisal

If the appraisal has factual errors or missed better comps, ask your lender for a reconsideration of value right away, because it can run while you negotiate. Ask whether the lender charges a fee for it. The steps are in the ROV section below.

3. Cover the appraisal gap with cash

If the seller holds at $400,000 and you want to keep 10% down, you need $58,000: the $20,000 gap plus 10% down on the $380,000 value. That is $18,000 more than your original $40,000.

The extra cash can come from savings or from a family gift documented with a gift letter, within your loan program’s gift rules. VA loans add a limit: if the price is above VA’s reasonable value, you must pay the difference in cash from your own resources (38 CFR 36.4339(a)(3)). Ask your lender whether a gift can be used for the gap.

4. Change the loan or the down payment

If you cannot add cash, you can keep your $40,000 and borrow $360,000 instead, if your loan program allows that LTV. Your LTV then becomes about 94.7% of the $380,000 value instead of 90%.

That higher LTV costs money. On a conventional loan, Fannie Mae’s standard mortgage insurance coverage for a 30-year fixed loan (other than HomeReady) rises from 25% at 85.01% to 90% LTV to 30% at 90.01% to 95% LTV. Higher coverage usually means a higher premium. A higher starting LTV also means more payments before you reach the point where PMI can come off. For typical costs, see how much PMI costs, then ask your lender for a quote at both LTVs.

Switching loan types or lenders takes time. A delay can also outlast your mortgage rate lock, so ask what an extension would cost.

5. Walk away under your appraisal contingency

An appraisal contingency lets you cancel, usually with your earnest money back, if the home appraises below a set amount. Terms vary by state and by contract. Some set a deadline for notice, some let the seller cure the gap, and some waive the contingency outright. Read yours before you assume you can exit.

FHA and VA contracts carry their own protection, covered below. If your contingency deadline is close, tell your agent now, because missing it can put your deposit at risk.

When a low appraisal leaves the seller unwilling to budge

If a low appraisal leaves the seller unwilling to budge, you still have moves:

• Ask for concessions instead of a price cut. A seller credit toward closing costs leaves more of your cash for the gap. Your lender must approve the credit, and loan programs cap it.
• Offer a partial split. A seller who rejects $20,000 off may accept $5,000 or $10,000.
• Request the ROV anyway. A revised value changes the negotiation for both sides.
• Remind the seller of the next appraisal. A new financed buyer will face a fresh appraisal, which may rest on the same comparable sales.
• Decide your limit. Set the most you will pay above appraised value before you counter, and stick to it.

If none of that works, compare the cash it takes to close with what walking costs. Under a valid contingency, that may be limited to costs you have already paid, such as your appraisal fee and inspection fee.

How to challenge a low appraisal with a reconsideration of value

A reconsideration of value is a request asking the appraiser to review specific information the report missed or got wrong. You send the request to your lender, not to the appraiser. The lender checks it and passes it to the appraiser, which keeps the appraiser independent.

Federal banking regulators and the CFPB issued interagency guidance on ROVs on July 18, 2024. It says a consumer “may provide specific and verifiable information that may not have been available or considered” in the first appraisal, including comparable properties and property details that were reported wrong.

For loans sold to Fannie Mae, the lender must have a borrower-initiated ROV process under Selling Guide B4-1.3-12. You get one borrower-initiated ROV per appraisal, and none after closing.

Steps to request an ROV

1. Get your copy of the appraisal. Under the ECOA valuations rule, 12 CFR 1002.14, your lender must give you a copy promptly upon completion or at least three business days before closing, whichever is earlier, unless you waived that timing.
2. Check the facts. Confirm square footage, bedrooms, bathrooms, lot size, garage, condition and recent upgrades.
3. Pull better comps with your agent. Look for closed sales closer in date, distance, size and condition than the appraiser’s choices.
4. Put the request in writing. Fannie Mae’s list covers your name, the property address, the appraisal’s effective date, the appraiser’s name and the request date. It also covers the errors you found, up to five comparable sales with their source (such as the MLS number), and why the new data supports a different value.
5. Ask about the timeline. Find out when the lender expects an answer and how that fits your contract deadlines.

An ROV can raise the value or leave it unchanged, and the appraiser must explain the result in a revised report. For loans sold to Fannie Mae, a request to change the value has to rest on material, substantive issues, not just on the value falling short of the loan amount. So base your request on evidence.

FHA and VA low appraisals

FHA

An FHA loan is based on the lesser of the purchase price or the appraised value (HUD Handbook 4000.1, II.A.2.a). If you signed the contract before you received the FHA appraised value, the contract must include FHA’s amendatory clause (II.A.1.a.i(E)(1)(a)(i)). It lets you cancel without forfeiting earnest money if the value comes in below the stated price, or proceed anyway.

FHA restricts appraisal shopping. A lender may not order another appraisal “to achieve an increase in value.” A second appraisal is allowed only in limited cases, such as a materially deficient first report or a property-flipping review (II.A.1.a.iii(B)(9)). If you switch FHA lenders, the original lender must transfer your case number at your request. The appraisal stays valid for 180 days from its effective date (II.A.1.a.i(A)(1)(b)).

ROVs on FHA loans are underwriter requests. The underwriter may ask for one when the appraiser did not consider relevant information (II.A.3.a.ix). HUD’s 2024 borrower-initiated ROV rules (ML 2024-07) were rescinded by Mortgagee Letter 2025-08 on March 19, 2025. You can still give your loan officer comps, but the underwriter decides whether to send them.

VA

VA appraisals add the Tidewater process (VA Pamphlet 26-7, chapter 10, topic 8). When the value looks likely to fall below the price, the appraiser must notify the party that ordered the appraisal, usually your lender, before finishing the report. The parties then have two business days to send sales data: address, price, sale date, living area and the listing.

After VA issues its Notice of Value, you may request a reconsideration of value in writing (topic 22). VA staff review it within five business days, or within 20 if they order a field review. Every VA purchase contract must also include the VA escape clause (chapter 9). It lets you cancel without losing earnest money if the price exceeds VA’s reasonable value.

Low appraisal on a refinance

A low appraisal on a refinance has no seller to negotiate with. Instead, a lower value raises your LTV, which can mean a higher rate, mortgage insurance, or less cash out. On a one-unit primary residence, Fannie Mae and FHA both cap a cash-out refinance at 80% LTV, so a lower value directly shrinks how much you can borrow.

You can still request an ROV, pay down the balance to hit the next LTV tier, or look at high-LTV refinance options. A VA IRRRL generally needs no appraisal at all.

Is a low appraisal good for the buyer?

It can be, in two ways. First, it gives you leverage, because the seller now has evidence the price may be too high. Second, it works as a warning. If you pay above appraised value, you start with less equity and may need time before the home is worth what you paid.

It is a problem when you lack the cash to cover the gap or your contract has no contingency. Also, check the report for condition notes. A low value tied to repairs can point to issues to raise with the seller, alongside other appraisal problems that can affect approval.

Low appraisal FAQ

How often do home appraisals come in low?

Most appraisals come in at or above the contract price. Cotality found 8.6% of home sales in the closing process appraised below the contract price in June 2024, down from 10.7% a year earlier. Cotality’s June 2024 figure was higher for small starter homes (9.6%) than for larger homes (7.1%).

What happens if an appraisal comes in low?

Your lender bases the loan on the lower appraised value, so you need more cash or a lower price to close on the same terms. You can negotiate, request an ROV, cover the gap, change the loan or cancel under a contingency.

How do you negotiate with the seller after a low appraisal?

Share the appraisal with your agent and ask for a price cut to the appraised value, or a split of the gap. If the seller refuses, ask for closing cost credits or a smaller cut. Your strongest point is that a new appraisal may rest on the same comparable sales.

Can the seller back out if the appraisal is low?

A low appraisal alone usually does not give the seller a right to cancel. The appraisal contingency normally protects the buyer. Still, contracts and state law vary, so check your contract’s terms with your agent or a real estate attorney.

Should I pay more than appraised value in a hot market?

It can make sense if you plan to stay long term and can cover the gap without draining reserves. However, you start with less equity, so set a firm limit before you offer.

Next step

Ask your loan officer for a written breakdown of cash to close at the appraised value, at a split, and at the full price. With those three numbers and your contract deadlines in hand, you can decide quickly whether to negotiate, challenge, pay, or walk away.