You and the seller agreed on a price. Then the appraisal comes back with a different number. That gap can quietly reshape your loan — so it's worth knowing exactly what happens in each direction.
Why there's an appraisal at all
Your lender isn't just financing your purchase; they're lending against the home as collateral. So they order an appraisal to confirm the property is actually worth what you've agreed to pay. The crucial rule that flows from this: your loan is based on the lower of the purchase price or the appraised value.
When it comes in at or above price
If the appraisal meets or beats your contract price, you're fine — the loan proceeds on your agreed price, and if it appraised above, you've essentially walked into some instant equity. No drama.
When it comes in below price
This is the scenario people worry about. If the appraisal is lower than your purchase price, the lender will only lend against the appraised value — not the higher number you agreed to. That leaves a gap to solve. Your usual options:
- Renegotiate with the seller to drop the price to the appraised value.
- Bring cash to cover the difference between the price and the appraised value.
- Challenge the appraisal (a reconsideration of value) if you have strong comparable sales suggesting it came in wrong.
- Split the difference, or walk away if your contract's appraisal contingency allows it.
Why it touches the rest of your loan
Because your down payment percentage and loan-to-value are calculated against the lower appraised value, a low appraisal can also nudge other things — like whether you cross a threshold for mortgage insurance. It's not just the gap; it can move your ratios.
The move
Know whether your contract has an appraisal contingency and what it lets you do. And don't assume a low appraisal kills the deal — it's a negotiation, not a verdict. The buyers who handle it well are the ones who walked in with a plan for the gap before the number ever came back.
Appraisal rules, reconsideration processes, and contingency terms vary by loan program and by your purchase contract — confirm your options with your loan officer and your agent.