Most buyers don't think about the appraisal until it's already a problem. You've agreed on a price, passed inspection, and then your lender's appraiser says the home is worth less than you're paying. Now what? The answer depends almost entirely on whether your contract has an appraisal contingency and how it's written.
What an Appraisal Is, and Why Your Lender Orders One
If you're financing the purchase, your lender needs an independent opinion of what the home is worth. They're lending against the property, so they won't loan more than it's worth. A licensed appraiser visits the home, reviews comparable recent sales, and issues a value. That value, not your purchase price, is what the lender uses to decide how much they'll actually lend.
What the Appraisal Contingency Does
An appraisal contingency protects you if the home appraises for less than the contract price. It generally gives you the option to renegotiate the price, bring extra cash to cover the gap, or walk away and get your earnest money back, as long as you act within the contract's deadlines. Without it, you could be on the hook to close at the full price even though your lender won't finance all of it.
What Happens If the Appraisal Comes in Low
- Ask the seller to lower the price to match the appraised value. Some sellers will, especially if the appraisal lines up with other buyers' likely offers.
- Split the difference. The seller drops the price part of the way, and you cover the rest.
- Cover the gap yourself with additional cash at closing, if you have it and still want the home at that price.
- Challenge the appraisal. Your lender can request a review if you or your agent have comparable sales the appraiser may have missed.
- Walk away, if your contingency is still active and the numbers no longer make sense.
None of these are automatic. Which one makes sense depends on how far off the number is, how competitive the market is, and how much you're willing to stretch.
Waiving It in a Competitive Market
In hot markets, some buyers waive the appraisal contingency or agree to cover a set amount of any shortfall to make their offer stronger. That can work, but it's real money at risk, and it's only worth considering if you've decided in advance how much extra cash you can actually put in. A good rule: never waive it in the moment because the pressure feels high. Decide your limit before you write the offer, with your agent and lender in the loop.
Writing an Offer and Not Sure How to Handle the Appraisal?
Let's talk through how much risk makes sense for your situation before you submit anything, so you're not making that call under deadline pressure.
Talk Through Your Offer StrategyAppraisal Contingency FAQ
Is an appraisal the same as a home inspection?
No. An inspection looks at the condition of the home. An appraisal estimates its market value for the lender. They answer different questions and have separate contingencies and deadlines.
Do I need an appraisal if I'm paying cash?
Not required, since there's no lender involved. Some cash buyers still order one for their own peace of mind, but nobody forces it.
Who pays for the appraisal?
Typically the buyer, usually as part of closing costs or paid upfront when the lender orders it. Your lender can tell you the exact amount and timing.
Can an appraisal come in higher than the purchase price?
Yes, and that's good news for you, since it means you're buying with some built-in equity. It doesn't change your contract price, though.