What happens during the appraisal and what do I do if it comes in low?

If the buyer is financing their purchase, their lender will require an independent appraisal of your property before approving the loan. The appraisal is the lender's way of confirming that the home is worth at least what they're being asked to lend. It protects their collateral. It is not conducted for your benefit, but it affects your transaction in ways you need to understand before you get to that stage.

The buyer's lender orders the appraisal, and the buyer typically pays for it as part of their closing costs. A licensed appraiser who is independent from both the buyer and the lender is assigned to the property. You'll be notified of the appointment and need to provide access. It's essentially like a showing, except the appraiser is measuring rooms, photographing the property, and documenting conditions rather than considering whether to buy it.

The appraiser produces a formal report establishing an opinion of market value based primarily on the sales comparison approach: what have similar homes sold for recently? The appraiser will pull recent comparable sales, similar size, age, condition, and location, closed within the last six months, and adjust for differences between those comps and your property.

A low appraisal is the scenario you want to avoid. This means the appraiser's opinion of value comes in below your agreed contract price. When this happens, the lender won't approve the full loan amount for the higher price. This creates a gap that someone has to bridge. The buyer may have an appraisal contingency that lets them exit the contract if the appraisal comes in low. Or the parties have to negotiate a solution: the seller reduces the price to the appraised value, the buyer makes up the difference in cash, the parties split the difference, or in the worst case, the deal falls apart.

To prepare for the appraisal, have a packet ready for the appraiser. Include a list of recent updates and improvements to the property with approximate dates and costs, copies of permits for any permitted work, and a list of features or recent comparable sales that you think support your contract price. Appraisers are professionals and won't simply accept your argument, but relevant data you provide can be considered.

If the appraisal comes in low, start by reviewing the report for factual errors. Wrong square footage, incorrect bedroom or bathroom count, a comp that was significantly different from your property that wasn't adjusted for properly. Errors happen and can be challenged through a Reconsideration of Value process. If there are no errors and the value is genuinely lower than your contract price, you're in a negotiation. Don't panic, but be realistic about your options.