Home appraisals can make or break a real estate transaction – so what can you do if your appraisal comes back low? This guide explains.

Why is a Home Appraisal So Important?

When a borrower asks a lender for the money to buy a home, the lender sends out an appraiser. The appraiser is an independent third party who determines how much a home is worth. Using nearby, similar properties, the appraiser compares the subject home to figure out a home’s legitimate value – and the lender uses this information to decide whether it can give someone a mortgage on the property.
Lenders typically don’t like to give a borrower more money than a home is worth. That’s because, statistically, homeowners are more likely to default on their payments when they are paying toward a home that’s worth less than what they owe on it.
When an appraiser determines that a home’s value is equal to or greater than what the buyer is asking to borrow, the lender can feel comfortable making the loan. However, if the appraiser discovers that the home is worth less than what the seller is asking, the lender is unlikely to approve the loan. This is known as a low appraisal, and it can derail a real estate deal.
Related: The 7 most common showing mistakes sellers make

What Happens if Your Home Appraises Low?

If your appraisal comes back low, your buyer has a few options. They can ask you to lower your sales price, come up with additional money to make up for what their lender won’t allow them to borrow, or walk away from the deal. Often, prospective buyers ask sellers to accept less money for the home first.