If your appraised value is lower than the agreed upon sales price, you'll have to make up the difference in cash, or cancel the deal.
The appraisal may differ from the selling price, which could affect your purchase of the home and your mortgage. The mortgage lender will only approve a loan based on the appraised market value (not the selling price) because they need to ensure that they can get that money back in the event of a foreclosure.
Yes, a loan can be denied after appraisal – at least for the loan amount requested.
Most appraisals come in at the right price. According to a report by Corporate Settlement Solutions (CSS), only about 8% of properties sold in the first half of 2024 sold for more than their appraised values. The biggest appraisal gap occurred in April 2022, when 20% of homes appraised for less than their sales price.
If the buyer can't come up with more cash and the seller won't lower the price, the buyer may have no choice but to back out of the sale. If the purchase agreement doesn't contain an appraisal contingency, the buyer will lose their earnest money deposit and possibly even face legal action.
The above issues might seem concerning but, according to Fannie Mae, “the vast majority of appraisals confirm contract price.” In fact, they come back low less than 10% of the time. So, chances are, you won't run into this issue.
The appraisal can affect the buyer's mortgage loan approval process in a couple of ways. In some cases, it can determine whether or not the loan goes through. And if the appraisal comes in lower than the purchase price, it might warrant another round of negotiations between buyer and seller.
“It has nothing to do with the seller; it is ordered by your lender, and payment is due regardless of the outcome,” says Maria Jeantet, a real estate agent with Coldwell Banker C&C Properties in Redding, CA. “It is typically paid by the buyer unless specifically negotiated ahead of time to be paid by the seller.”
If the appraisal value is lower, the mortgage lender of the buyer will not lend more than the appraised value, which could create a financial shortfall for the buyer. In such a scenario, the buyer would need to come up with more cash or renegotiate the price with the seller to match the appraisal value.
Nowadays, most sales contracts have a safety net built in for buyers. There's often an addendum that allows buyers to back out without losing their earnest money deposit if the appraisal doesn't match the offer price.
The standard, professional answer is, of course: “No, it won't affect value. Appraisers are trained to look at the structure and layout of the house, and overlook the sinkful of dirty dishes. Don't worry.”
Just keep your communication to the appraiser about the facts of the home and neighborhood, how you priced the house, and any other relevant information you think the appraiser should know. And remember, don't discuss value. Don't pressure the appraiser to 'hit the value' and you'll be fine.
You may try to negotiate a lower price with the seller, but if a compromise can't be reached – or you can't pay the difference to cover the appraisal gap – the sale could fall through. Also keep in mind that a low appraisal can ultimately affect how much equity you have starting out in your new home.
Consumers have the option of filing a complaint regarding their appraisal or evaluation directly with their lender, or through the lender's federal regulator. Visit HelpWithMyBank.gov for more information about how to contact your lender's regulator and how to file an appraisal complaint.
Do sellers usually lower their asking price if the appraised value is lower? Whether the seller decides to lower their asking price will depend on a number of factors, including how motivated they are to sell or if they have other offers above asking price.
If you walk away from a sale due to an appraisal gap, do you lose your earnest money? You will unless your purchase agreement included an appraisal contingency.
Unless the seller has a contingency (which is rare), the buyer commits fraud, or the buyer breaches the contract, sellers can't break a contract without consequences. But there are options. Just because the appraisal comes in low doesn't mean you have to accept that price as your sales price.
This payment is fully refundable if you withdraw before the appraisal inspection occurs. Because this is a third-party fee, it's not refundable after the inspection has taken place.
The appraisal to closing timeline may vary, but it generally takes two to five weeks to close after completing the home appraisal. How fast can you close on a house? While closing on your new house sooner than the average 43 days is possible, it requires a streamlined closing process.
The Appraisal and the Mortgage
The amount that is determined by the appraisal will have a direct effect on how much money you can be loaned for the mortgage. The lender will offer the home loan based on the estimate that comes from the appraiser so that they know the home's fair market value.
If you have an appraisal contingency in your contract, you can back out of an offer if it comes in lower than the sell price. You can because that means the bank won't give you as much money for the mortgage. The bank only covers what it appraises for.
MARKET CONDITIONS
When markets move faster than normal, appraisal values lag market prices. As mentioned, the appraisal process compares recent past sales. Backward looking data -- no matter how recent it is -- won't keep pace with present prices in high-velocity markets.
Real estate experts estimate between 10-20% of appraisals come in lower than the sale price.