Introduction

First of all, if you are dealing with a contract, you’ll want to defer to the language written in the contract. Appraisal contingencies are often not built into a standard offer but are added to spell out what happens. Learn more about what contingent means on a listing and how contingencies protect you in the event the appraisal comes in lower than the purchase price.

If the appraiser will not make adjustments, here is what happens:

  1. 1

    Seller Side: Ask Buyer to Cover the Gap

    As the seller, you will likely ask the buyers to come up with the difference in cash. Buyers cannot get a mortgage above the appraised value, so they would need to bring the difference in cash. Example: $205,000 purchase price minus $200,000 appraised value = $5,000 the buyer pays in cash.

  2. 2

    Buyer Side: Ask Seller to Reduce the Price

    As the buyer, you will ask the seller to reduce the cost of the house to match the appraised value. In the example above, you would ask the seller to reduce the purchase price to $200,000.

  3. 3

    Compromise: Split the Difference

    There is room to compromise. Using the same numbers, a possible compromise would be for the seller to reduce the price by $2,500 and the buyer to bring an additional $2,500 to make up the difference.

  4. 4

    Terminate: Walk Away from the Contract

    If neither party is willing to budge, the final option is to terminate the contract. An appraisal contingency protects the buyer's earnest money deposit in this scenario.

Frequently Asked Questions

What happens when an appraisal comes back low?

The buyer, seller, or both will need to make up the difference between the purchase price and the appraised value. Options include the buyer bringing extra cash, the seller reducing the price, a compromise split, or terminating the contract.

Can you challenge a low appraisal?

Yes. You can review the appraisal report and provide alternative comparable properties that better support the purchase price. If the appraiser agrees, they may adjust their valuation.

What is an appraisal contingency?

An appraisal contingency is a contract clause that specifies what happens if the appraisal comes in below the purchase price. It protects the buyer by allowing them to renegotiate or exit the contract without losing their earnest money deposit.