Short answer: your lender will only finance based on the lower of your purchase price or the appraised value. If the appraisal comes in below what you agreed to pay, you're responsible for covering that gap yourself, on top of your planned down payment.
Why This Happens
In competitive markets, or bidding wars, buyers sometimes offer above recent comparable sales to win a property. An appraiser working from actual comparable sales data may value the home lower than the accepted offer, creating a gap between what you agreed to pay and what the lender will actually lend against.
A Real Example
Say you offered $650,000 with 10% down ($65,000 planned), but the appraisal comes back at $625,000. Your lender will base your mortgage on $625,000, not $650,000, meaning your effective down payment needs to cover the full $25,000 gap plus your original 10%, or roughly $90,000 total instead of $65,000.
Your Real Options
- Negotiate with the seller to lower the price to match the appraisal, common in a cooling or balanced market, less likely in a hot one.
- Bring more cash to closing to cover the gap, if you're able to.
- Dispute the appraisal, requesting a reconsideration with additional comparable sales evidence, though this doesn't always succeed.
- Walk away, if your offer included a financing condition, which is exactly why that condition matters, especially in a competitive market where waiving it feels tempting.
Why a Financing Condition Matters
Waiving your financing condition to make an offer more competitive means you're also giving up your out if the appraisal comes in low. It's a real risk worth weighing carefully, ideally with your mortgage agent before you write the offer, not after.
Worried About an Upcoming Appraisal?
We'll talk through your specific offer and how much cushion you actually have. Talk to Sean before you waive any conditions.