The Situation
You received and accepted a great offer for your home. And the inspection is behind you.
Now you get a call from your agent telling you that the bank's appraisal of your home came in below the offer price.
Here are the details:
- Purchase price: $3,000,000
- Bank appraisal: $2,850,000
- Appraisal gap: $150,000
- Mortgage contingency: Included (acceptable appraisal not waived)
What Sellers Miss: The Devil’s in the Details
The Home Seller's Dilemma
As the seller, you now have two basic choices:
- Hold firm on price and risk losing the buyer.
- Compromise and make a deal.
Neither choice is automatically right or wrong. The best decision depends on the strength of your original offer, the buyer's ability to cover some or all of the appraisal gap, current market conditions, and what your alternatives look like if the buyer walks away.
Option 1: Hold Firm on Price — and Risk Losing the Buyer
In some markets and situations, holding firm on price can be a good strategy.
For example, during COVID, when it was common for sellers to receive multiple offers on their homes, refusing to negotiate over a low appraisal was often a reasonable approach. If one buyer walked away, there might have been several others ready to step in.
Today's market is more nuanced.
Well-priced homes in desirable Greater Boston communities can still generate multiple offers, but sellers shouldn't automatically assume that another buyer will match the price and terms of the buyer already under agreement.
Important: In our example, the buyer did not waive the appraisal requirement in the mortgage contingency. If the low appraisal prevents the buyer from obtaining the required financing, the buyer may have the right to terminate the transaction under the terms of that contingency.
So, before holding firm at the $3,000,000 purchase price, consider:
- Did you receive other offers — and how close were they to $3,000,000?
- Do you still have a legitimate backup buyer?
- How long was the property on the market before receiving this offer?
- What would another 30–60 days of ownership cost you?
- Could the next buyer's bank arrive at a similar appraised value?
Option 2: Compromise and Make a Deal
The second option is to negotiate with the buyer and find a number that keeps the transaction together.
That does not necessarily mean reducing the purchase price by the full $150,000 appraisal gap.
Depending on the buyer's financing, down payment, and available cash, there may be several ways to make the deal work:
- Reduce the price by part of the appraisal gap.
- Split the difference with the buyer.
- Have the buyer bring additional cash to closing.
- Use some combination of the above.
The Bottom Line
There is no one-size-fits-all answer when a bank appraisal comes in below the purchase price.
The right decision depends on the strength of the market, the terms of the offer, the buyer's financial position, and your alternatives if the deal falls apart.
Talk with your real estate agent about both options and weigh the risks carefully.
In a strong multiple-offer market, holding firm may make sense. In a more balanced market, where another buyer is not guaranteed, compromising to preserve a good transaction may be the better financial decision.
Sometimes the smartest move isn't holding out for something better.
It's making the best deal available to you today.
For owners of higher-value homes, the sale price isn't the only financial consideration. Understanding the potential tax consequences of selling a Massachusetts home can also be an important part of planning your sale.
Key Terms: Low Home Appraisal, Gaps, and Contingencies
What is an appraisal gap?
The difference between the price under contract and the lender's appraised value. In our example, a $3,000,000 price and a $2,850,000 appraisal create a $150,000 appraisal gap.
What is a mortgage (financing) contingency?
It makes the purchase contingent on the buyer securing the loan spelled out in the agreement. If a low appraisal shrinks that loan and the buyer can't get the financing they need, the contingency may let them terminate the transaction and recover their deposit — depending on the exact language of the offer and purchase agreement.
What is an appraisal contingency?
A provision specifically protecting the buyer if the home does not appraise at an agreed value. It may be included within the financing terms or addressed separately. Buyers can also waive or limit this protection — something that became much more common during highly competitive bidding situations.
What is appraisal gap coverage?
A buyer's up-front agreement to cover some or all of an appraisal shortfall, often up to a specified amount. Negotiated before the appraisal, it may obligate the buyer to contribute additional cash rather than asking the seller to reduce the price.
Is the appraisal gap the same as the buyer's cash shortfall?
Not necessarily.
For example, assume our $3,000,000 buyer planned to finance 80% of the purchase price:
- Original purchase price: $3,000,000
- Original 80% loan: $2,400,000
- Appraised value: $2,850,000
- 80% of appraised value: $2,280,000
- Reduction in available financing: $120,000
So, although the appraisal gap is $150,000, the buyer's additional cash requirement in this example would be $120,000 — not the full $150,000.
The actual impact depends on the buyer's loan amount, down payment, and lender requirements. Before conceding on price, understand the actual financing shortfall created by the appraisal.
What is a Reconsideration of Value (ROV)?
A process through which the borrower can ask the lender to review an appraisal when there is a factual basis for doing so — for example, incorrect property information, overlooked comparable sales, or other errors in the report. A seller or listing agent may be able to provide relevant information for the buyer to submit through the lender. It is not simply a way to challenge an appraisal because you disagree with the value.
