What happens to a financed home sale when there is a low appraisal value?

Lenders fund a home purchase loan based on the accepted offer price or the property appraisal value, whichever is lower. So what happens to the deal if the appraisal value is lower than the offer price? In cases like these, the buyers and sellers have a few alternatives.

  • If it’s a conventional loan, the buyer could apply with another lender who hopefully will use a different appraiser. This will cost the buyer more money, but it may work out. (FHA appraisals are tracked by property address and can’t be re-done.VA appraisals are performed by a much smaller select group of people, and there is a significant chance that a new lender will use the same appraiser.)

  • The buyer can pay the difference between the offer price and the appraisal value as part of a larger down payment. Frequently, the seller may agree to pay half of that difference as a credit to the buyer at the closing.

  • The seller can accept the appraisal value as the new purchase price.

  • If none of these options are acceptable, the buyer can walk away from the deal. This is one of the reasons why many sellers may prefer a lower cash offer where there are no appraisal or loan approval contingencies that allow a buyer to cancel without penalty. Cash is king, usually.