Low appraisals can be meddlesome, but there are plenty of solutions to this common problem. Here’s what you can do.

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A very common question I hear from my clients is, “Does a home have to appraise at the contract price or the financed loan amount?”

The short answer is the contract price, but here’s why: When financing a home purchase, a lender must ensure that they don’t finance more than a home is worth. The lender will typically require the buyer to contribute a small amount to the transaction, commonly referred to as a down payment, to help safeguard against risk.

The financed price, or maximum amount the lender can loan you, is usually expressed in loan-to-value ratio. For example, an 80% loan-to-value ratio product will require a 20% down payment. A 90% loan-to-value ratio will require a 10% down payment.

A common problem occurs when an appraisal value is less than a contract price. For example, if a buyer agrees to pay $260,000 for a home and the appraisal comes back at $250,000, the loan will only cover 95% of the appraised value of $250,000, or $237,500. To complete the purchase, the buyer would need a down payment of $22,500 instead of the originally planned $13,000.


Basically, a low appraisal number has the ultimate result of requiring a higher down payment from the buyer. Of course, the buyer may not be willing or able to come up with that difference. In that case, they do have the option of walking away from the contract due to the appraisal contingency.

There are also different ways to overcome a low appraisal. You could ask the seller to reduce the sale price to reflect the appraised value, or you could negotiate somewhere in the middle.

If you have questions about this topic or anything else related to real estate, I’d love to be your resource. Just reach out via phone or email today.

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