What Happens if the Appraisal Comes in Low?

Real Estate Agent with Ansley Real Estate/Christie's International 262285

The hangover from the real estate market nonsense of the last couple of years continues. Everyone needs to reacclimate themselves with accurate pricing, contingencies, contract language and the many steps of getting a deal closed. One of the most challenging parts will be appraisals and knowing what happens if the appraisal comes in low.

Lenders continue to issue bulletins to appraisers reminding them that the best comps are the most current. In other words, use closed sales that reflect the changing market. Underwriting is also closely evaluating the market conditions form, appraisers are expected to accurately reflect the market, not simply rubber stamp things.

What happens if the appraisal comes in low is directly controlled by the parties involved in the contract. Solutions range from the adjusting contract price to appraisal, negotiating the difference, or the buyer terminating the contract. Every situation is different, resolution depends on the agents and parties working things out.

As a point of clarity, appraisals don’t “come in low”; they come in below contract price. Appraisers do not rubber stamp contracts, they follow MANDATED guidelines. Agents would be well advised to understand these guidelines, the selection of comparable sales at a bare minimum. They would also do well to ensure that their clients, buyers and sellers, understand this process. Most important, buyers and sellers should QUALIFY THEIR AGENT.

Comments (15)

Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Hank and great information to share with us here in the Rain.  Make it a great Thursday!

Jan 19, 2023 07:39 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

Great info, thanks for sharing. I agree , agents need to understand this process and then educate clients accordingly 

Jan 19, 2023 08:36 AM
Anna "Banana" Kruchten
HomeSmart Real Estate - Phoenix, AZ

Hank this is great information for all agents to understand.  The idea that appraisals 'come in low' always seemed like an odd way of saying - it came in under sales price and here's why.  On occasion, very rare occasion, I know there had been some mistakes made that would have made a big difference in evaluation had the appraiser known, and we did get them handled - upwards.

Jan 20, 2023 11:28 AM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning Hank. A good appraisal reflects current market conditions. With our rapidly changing circumstances beyond our control many times the contract price may not. Pre-qualify your agent while you are getting pre-approved for a mortgage. Enjoy your day.

Jan 21, 2023 05:23 AM
Ed Silva, 203-206-0754
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

If the agent really knows what they are  dealing with then it would be best to look at comparables themselves to assure that their client's offer has a chance to appraise. If the cash they are using to support the contract allows them leeway, the agent should let the buyers know that if their offer is still over market, they will most likely have to accept buying over value just to get the house.

Jan 21, 2023 07:44 AM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

A little appraisal can mess with your mind, so it’s good to have these strategies to fall back on.

Jan 21, 2023 06:09 PM
Dr. Paula McDonald
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

And, it's always good if you know your market better than an appraiser who comes in from out of town, to have your stats ready to refute. I have come out on top many times with a low appraisal.

Jan 22, 2023 12:53 PM
Kathleen Lordbock
Keller Williams Realty Professionals - Baxter, MN
Keller Williams Realty Professionals

As a point of clarity, appraisals don’t “come in low”; they come in below contract price.

Well stated!

Jan 23, 2023 07:28 PM
Kimo Jarrett
Cyber Properties - Huntington Beach, CA
Pro Lifestyle Solutions

Regardless of the appraisal, the buyer determines the market value, don't they? Why have buyers paid more than asking price and much more than the appraisal? Appraisals are just a barometer and used mostly by landers to determine intrinsic value, so, ultimately, buyers determine value based on their own criteria. 

Jan 23, 2023 11:31 PM
Hank Miller, SRA

ehhhhh....When I appraise a property, I really don't care why it was purchased; there is no emotional connection for me. My job is simply to ensure that the lender's exposure is covered. Buyers do determine market value, but as noted, emotion plays a significant role in home purchases. So do market conditions, FOMO and agents. How many buyer agents pulled buyers back off the cliff? Not many when you see 72%+ buyer remorse and lawsuits jump 10% over 21.

You can't measure "intrinsic" value, appraisers can measure "market value". One can argue that later 21/first half of 22 was a nonsensical market - most buyers were just stupid. Underwriting - what appraisers are guided by - continues to hammer that, they want comps from the last six months, not early/mid 22.

A lot of moving parts, most agents would do well to understand how appraisers work and the standards they are required to meet.

Jan 24, 2023 12:30 PM
Debra Kukulski, Broker Associate
RE/MAX Suburban - Cary, IL
SRES;SFR,CDPE;GRI;ABR;e-PRO Realtor, Northern IL

Good information to get out there!

Jan 24, 2023 08:44 AM
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID

I have successfully challenged about a dozen appraisals and got them increased on my listings over the years here in Boise, Idaho.  I think I have only lost about 3 challenges.  One of the appraisers wouldn't change his mind if you hit it with a Mack truck doing 75 MPH.  The trick is to help them realize why different comps are actually better or pointing out adjustments they forgot to make (politely).   I had a buyer client about 2 years ago and that appraisal came in $28,000 below our sales price.  I asked the listing agent (whom I had never heard of nor their company) to share their excellent CMA with the appraiser in an effort to get the valuation raised.  Instead, she just sent us an addendum to drop the price to match the appraisal.  My clients were two women who were legally married.  I told them I realized they weren't into men; however, they should give me a kiss. We negotiated to a "Thank You and a Smile".

Jan 24, 2023 01:50 PM
Kimo Jarrett
Cyber Properties - Huntington Beach, CA
Pro Lifestyle Solutions

What Is Intrinsic Value?

Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model. Intrinsic value is different from the current market price of an asset. However, comparing it to that current price can give investors or buyers an idea of whether the asset is undervalued or overvalued. Ultimately, the buyer determines it's value, regardless of someone's opinion, whether professional or otherwise. 

Most buyers were just stupid, really? Buyers will pay more for any asset up to their limitations if they desire to own it and alleging them to be stupid for their desire should be appalling to everyone. 

If your fee for service is 20% higher than your competitor, would your client be stupid to pay your fee? 

Jan 24, 2023 08:03 PM
Hank Miller, SRA

Yes, most buyers were stupid and clearly a significant number have regrets about their purchases. Many bought money pits, functionally/economically obsolete homes, most all overpaid - some insanely so. Wait until they try and sell, the pain will be even more severe. Have a look at how buyers feel - hit that link




I'm not alleging anything, I'm not a cheerleader nor an executioner. My role is to counsel clients based upon data, experience and a myriad of other factors as applicable. Buying a home is often an emotional process, our role is to check that with logic and information. We are paid to keep people out of trouble.


Jan 26, 2023 02:24 PM
Anne Corbin
Long and Foster - Lake Anna - Spotsylvania, VA
Serving Lake Anna & Central Virginia

There are definitely options if an appraisal comes in lower than contract price. Negotiate as much as possible to satisfy both sides. The seller wants to sell and the buyer wants to buy. Hopefully, common ground can be found.

Jan 25, 2023 05:23 AM
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

i have not seen very many appraisals that came in under the contract price -- give or take 3-5 in my 30 years of practicing real estate.  Two of them I challenged and won. Both times a happy buyer and seller.  The others?  Happy Buyer, Sad Sellers. It happens.

Jan 26, 2023 12:18 PM
John Juarez
The Medford Real Estate Team - Fremont, CA

A real estate appraisal is the opinion of one skilled professional on a given day. That person can make a mistake. That person is human. That person may be operating in a geographic area in which they are not familiar. That person may be having a bad day. Mostly, that person is doing an adequate job and putting forth their best effort.

Yes, appraisers are human and can error. Usually, they are providing a important product that is a requisite step in the decision of a lender to approve a loan, Appraisers do not take their responsibility lightly.

Dec 07, 2023 01:23 PM