~3 minute lesson · Beginner · Buying a Home
When the appraisal and price differ
The Short Answer
An appraisal affects financing; it does not replace an inspection.
How It Works
An opinion of value for a purpose
The appraisal provides a professional opinion of value for the lending process. It considers relevant property information and market evidence. An inspection primarily evaluates condition, while the lender uses valuation information to assess its collateral. Neither tells you exactly what a future buyer will pay.
A lower value can change the financing
A lender may calculate available financing using a lower appraised value rather than the contract price. The resulting cash need depends on loan-to-value rules and your loan. Ask for an updated cash-to-close calculation; do not assume the difference between price and appraisal always equals the additional cash required.
Consider the available responses
Depending on the contract and lender, options may include negotiating the price, contributing more cash, requesting a review supported by factual evidence, or exercising an applicable contingency. An appraisal-gap promise may commit you to additional funds. Understand any cap and how it interacts with other contract provisions.
What to Remember
- An opinion of value for a purpose
- A lower value can change the financing
- Consider the available responses
Ask the lender to show how a lower appraisal changes your actual loan and cash requirement.