I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. Call (800) 239-1103.
You found the home, your offer was accepted, and then the appraisal comes back $50,000 below the purchase price. This is one of the most stressful moments in any California real estate transaction — and it happens more often than most buyers expect, especially in fast-moving markets where sellers are pricing aggressively. Here’s exactly what happens when an appraisal comes in low, and what your options are.
Why Appraisals Come In Low
Lenders hire independent appraisers to confirm that the property is worth at least the purchase price. Appraisers use recent comparable sales (“comps”) from the surrounding area. When the market is rising quickly, recent comps may lag behind current prices — meaning the appraisal reflects what similar homes sold for 3–6 months ago, not what they’re selling for today. Other causes include unique or upgraded properties with few comparable sales, appraisers unfamiliar with the local micro-market, or genuinely overpriced listings.
What a Low Appraisal Means for Your Loan
Your lender will only lend based on the appraised value, not the purchase price. If you’re buying a $900,000 home with 20% down ($180,000) and the appraisal comes in at $850,000, your lender will only loan 80% of $850,000 — or $680,000 instead of $720,000. You’d need to cover the $40,000 gap from your own funds, or the deal falls apart.
Your Options When the Appraisal Is Low
Option 1: Renegotiate the Purchase Price
The most common outcome: go back to the seller and ask them to lower the price to match the appraised value. In a buyer’s market, sellers often agree rather than lose the sale. In a competitive market, this is harder — the seller may know another buyer will pay full price in cash.
Option 2: Cover the Gap With Cash
If you have the funds, you can simply pay the difference between the appraised value and the purchase price out of pocket. This is called “making up the appraisal gap.” You’re essentially paying more than the lender thinks the home is worth — which makes sense if you believe the market supports the price or if the home is unique and irreplaceable to you.
Option 3: Request a Reconsideration of Value (ROV)
You (or your agent) can formally challenge the appraisal by submitting a Reconsideration of Value request to the lender. You’ll need to provide comparable sales that the appraiser missed or excluded, along with supporting data showing they’re genuinely comparable. This works best when the appraiser clearly overlooked recent sales or used weak comps. The lender submits the ROV to the appraiser for review.
Option 4: Order a Second Appraisal
In some cases, you can request a second appraisal — particularly if the first one had obvious errors. Note that the lender controls this process; you can’t simply hire your own appraiser and expect the lender to accept it. However, switching lenders sometimes results in a new appraisal being ordered.
Option 5: Walk Away
If your purchase contract has an appraisal contingency (which it should), you can walk away and get your earnest money deposit back if the appraisal comes in low and the seller won’t negotiate. This is a critical protection — make sure your offer includes an appraisal contingency, especially in uncertain markets.
Split-the-Difference Negotiations
In practice, many low appraisal situations are resolved with a negotiated split: the seller reduces the price somewhat, and the buyer covers part of the gap. For example, if the home is priced at $900,000 and appraises at $850,000, the seller might come down to $875,000 and the buyer covers the remaining $25,000 gap. Both parties stay in the deal.
Preventing Appraisal Problems Before They Happen
- Ask your agent to research comparable sales before submitting an offer — if recent comps don’t support the price, factor that in
- Include an appraisal gap clause in competitive offers (you agree to cover a gap up to a specified amount)
- Make sure your agent is present at the appraisal appointment and provides the appraiser with a package of supporting comps
Dealing With a Low Appraisal? We Can Help.
DiVita Home Finance has navigated hundreds of appraisal challenges across California. We can help you evaluate your options, structure your financing around the appraised value, and keep your transaction moving forward.
Frequently Asked Questions
What happens if a home appraisal comes in below the purchase price?
Your lender will only finance based on the appraised value, not the purchase price. The difference — called the appraisal gap — must be covered by the buyer in cash, renegotiated with the seller, or addressed through a reconsideration of value. If your purchase contract includes an appraisal contingency (which it should), you can also walk away and get your earnest money back if the seller won’t negotiate and you can’t cover the gap.
Can I challenge a low home appraisal in California?
Yes. You can submit a Reconsideration of Value (ROV) request through your lender, providing comparable sales the appraiser missed or didn’t use. This is most effective when there are recent, genuinely comparable sales that support a higher value — not just because you disagree with the result. Your buyer’s agent can help compile the supporting data. The lender submits it to the original appraiser for review. If the first appraisal had clear errors, switching lenders can sometimes result in a new appraisal being ordered.
Should I include an appraisal contingency when buying a home in California?
Yes, in most cases. An appraisal contingency protects your earnest money deposit — if the home appraises below the purchase price and you can’t cover the gap or renegotiate, you can walk away without losing your deposit. In very competitive California markets, some buyers waive the appraisal contingency to strengthen their offer, but this carries real financial risk. If you waive it and the appraisal comes in low, you’re on the hook for the full gap in cash or lose the deal and your deposit.
Talk to Michael Directly
DiVita Home Finance | Tiburon, CA | In lending since 2000, founded DiVita Home Finance in 2007. Michael DiVita DRE #01372066 | NMLS #241655. Company DRE #01818285 | NMLS #323700.
💬 Text: (310) 849-9124
