What is an appraisal and why does it matter?
An appraisal is an independent assessment of a home's value conducted by a licensed appraiser. Your lender requires an appraisal to make sure the property is worth the amount you are borrowing. If the home is worth less than what you offered, the lender will not lend you the full amount. This is where the appraisal contingency comes into play.
How the appraisal contingency works
Most standard Florida real estate contracts include an appraisal contingency. It says the contract is contingent on the property appraising for at least the purchase price. If the appraisal comes in low, you have several options. The specific timeline is typically spelled out in your contract, usually giving you 3-7 days after receiving the appraisal to respond. If you do nothing and let the deadline pass, you may be deemed to have waived your contingency rights.
Your options when the appraisal comes in low
Option 1: Renegotiate the price with the seller
This is the most common outcome. You go back to the seller and say "the home appraised for $10,000 less than our agreed price. Can you meet us at the appraised value?" Many sellers will agree, especially if they know you could walk away. If they refuse, you can split the difference. For example, if the home appraised at $340,000 and you offered $350,000, you might agree on $345,000 with each side covering part of the gap.
Option 2: Challenge the appraisal
Appraisals are not infallible. If you believe the appraisal missed something (comparable sales that should have been included, the size of the home, recent upgrades), your agent can submit a reconsideration of value request to the lender. This includes providing additional comparable sales and documentation. It works sometimes, but do not count on it. Appraisers can be reluctant to change their valuations.
Option 3: Make up the difference in cash
If you have extra cash and really want the home, you can cover the gap. For example, if the home appraised at $340,000 and you offered $350,000, you would need to bring an extra $10,000 to closing because your lender will only lend against the $340,000 value. This only makes sense if you have the cash and believe the home is worth the higher price despite the appraisal.
Option 4: Walk away
If you cannot reach an agreement with the seller, cannot challenge the appraisal, and do not have the cash to cover the gap, you can exercise your appraisal contingency and cancel the contract. Your earnest money deposit is returned because you are canceling due to a valid contingency. You lose the home, but you do not lose your money.
What if you waived the appraisal contingency?
In competitive markets, some buyers waive the appraisal contingency to make their offer more attractive. This is risky. If you waive it and the home appraises low, you are on the hook for the difference. You either pay the gap in cash or risk losing your earnest money deposit if you cannot perform. I generally advise against waiving appraisal contingencies unless you have significant cash reserves and understand the risk.
Tips to avoid appraisal problems
- Price your offer strategically — base your offer on comparable sales, not emotion, and your odds of a low appraisal go way down
- Work with an agent who knows the market — an experienced agent can predict what a home will appraise for
- Choose a good lender — experienced lenders know which appraisers are fair and accurate in your area
- Keep the home in good condition for the appraisal — while appraisers focus on comparable sales, a clean, well-maintained home can help
- Include an appraisal gap clause — if you want to be competitive without waiving the contingency entirely, offer to cover a specific gap (e.g., up to $5,000 or $10,000)
My advice on appraisals
Low appraisals happen more often than you might think, especially in a fast-moving market where prices are rising faster than appraisers can track. Do not panic if it happens. In most cases, buyers and sellers find a middle ground. And if you have an appraisal contingency, you are protected. The key is having a knowledgeable agent on your side who can help you navigate the options and negotiate effectively with the seller.
