As real estate brokers, we try our best to run detailed comparative market analyses to determine the best listing price for your property. However, if there aren’t a lot of similar properties in the area that recently sold, we have to use our best judgment. Furthermore, if a property has a major defect that isn’t visible or disclosed, your real estate broker will have no idea to factor that into the listing price.

A seller’s market with rising property prices is a catalyst for low appraisals. Properties are flying off the market above market value, so it’s difficult to determine what they are actually worth. Furthermore, in rural real estate markets, there are fewer comps available. There are also risks associated with building a home that is too different from other properties in the area because, again, there are fewer comps.

So, what happens if you get a low appraisal?

What is an Appraisal on a Home?

A home appraisal is a professional report that helps lenders determine the home’s value. While you can request an appraisal at any time, they are most commonly requested by lenders during a real estate transaction. When a buyer is financing a property, the lender uses the appraised value to ensure that they’re not loaning more than the property is worth.

What is an Appraisal Contingency?

In addition to protecting lenders from loaning too much money, an appraisal contingency protects buyers from having to spend too much money if the appraisal comes back low.

A home appraisal contingency is an addendum to the offer contract that allows the buyer to back out if they cannot afford the difference between the offer price and the appraised value. For example, a Colorado log home for sale is listed for $475,000. With a few offers already on the table, the buyers offer $485,000.

Within the appraisal clause, the buyers state that they’re able to pay an additional $15,000 out of pocket if the appraisal comes in lower than the offer. This clause means that if the appraiser values the property at $470,000, the buyers will pay the difference that the lender will not cover.

What to do When You Receive a Low Appraisal

According to the National Association of Realtors’ 2021 Confidence Index Survey, appraisal issues caused 23% of real estate transactions to be delayed and 12% to fall through completely. So, what can you do to prevent appraisal issues from ruining your real estate transaction?

If an appraisal is lower than the offer price, sellers can:

  • Ask the buyers to challenge the appraisal.
  • Renegotiate the sale price.
  • Offer seller financing instead of lender financing.
  • Cancel and relist at a new price.
  • Look for an all-cash offer to avoid dealing with a lender’s appraisal.

If the buyer still wants to move forward with the purchase after a low appraisal, they will have to make up the difference between the appraisal price and the offer price in cash. For example, if the buyer needed the appraisal to be $400,000, but it comes in at $390,000, the buyer can:

  • Pay the remaining $10,000 in cash.
  • Take some money from the down payment to cover the difference, but doing so affects the monthly payment.
  • Appeal the appraisal.
  • If they can’t afford to pay the difference, the buyers can cancel the contract.

What do Home Appraisers Look For?

An appraisal relies heavily on comparable sales of similar properties, not necessarily the unique features or functionality like a home inspection does. While a home inspector evaluates the home features and systems and suggests repairs, an appraiser looks at:

  • The age and condition of the home.
  • Size and square footage.
  • Necessary repairs and damage.
  • Lot size and zoning.
  • Comparable properties.
  • Local housing market.

Things that make a property unique and desirable are often not reflected in the appraised value. The following features are considered subjective and often are not considered in the appraisal:

  • Views.
  • Quality of construction compared to other homes in the area.
  • Certain upgrades that are not commonplace or found in comparable properties e.g. high-end appliances, upgraded windows, expensive tile flooring, etc.
  • Unique types of construction e.g. log homes, strawbale homes, solar power, etc.

Find a Broker Who Can Help You Evaluate Your Options

Appraisals come in low, especially in the current seller’s market. It’s not a rare circumstance, but you definitely need a listing broker qualified to help you navigate a low appraisal and eliminate enough buyer’s concessions to prevent the deal from falling through.

For inquiries about overcoming a low appraisal or selling your property in Western Colorado, reach out to me at