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Welcome to Market & Moments, where real estate broker Susan Kadilak shares market updates and lessons learned from more than two decades in the business.

Most buyers and sellers expect a certain level of competition and negotiation as they enter the real estate market, but one moment that can quickly shift a deal is when a home appraisal comes in lower than the agreed-upon purchase price.

So, what actually happens next?

What Is an Appraisal?

When a buyer is financing a home, their lender requires an appraisal to determine the propertyā€™s fair market value. This protects the bank from lending more money than the home is worth.

If the appraised value comes in at or above the purchase price, the deal moves forward as planned. But when it comes in low, things can get more complicated and the buyer may not be able to obtain a mortgage to purchase the home.

Why Do Low Appraisals Happen?

Low appraisals can occur for a few reasons. In fast-moving markets like Burlington, home prices can rise quickly, sometimes outpacing comparable recent sales. Because appraisers rely on past data, there can be a lag between what buyers are willing to pay and what the data supports.

Other factors may include limited comparable sales, unique property features, or simply a more conservative valuation.

Getting Ahead of a Low Appraisal

On a home we recently listed, we received a total of 10 offers. The property was priced appropriately based on comparable sales, but the level of competition resulted in many of those offers coming in well above asking price.

While thatā€™s exciting for sellers, it can also raise a red flag. Based on the data, I knew it was unlikely the home would appraise at those higher numbers.

After carefully reviewing the offers, we ultimately chose a buyer who put down a strong amount of cash and agreed to cover any appraisal gap (more details on that below). That gave the sellers confidence that the deal would move forward at the agreed-upon price, even if the appraisal came in low.

Of course, not all buyers have that level of flexibility, which is where understanding your options becomes important.

What Are the Options?

When an appraisal comes in low, both buyers and sellers have a few paths forward:

  1. Renegotiate the price. The seller may agree to lower the price to match the appraised value, especially if they want to keep the deal together.
  2. Buyer covers the gap. If the buyer still wants the home and has the funds available, they can choose to make up the difference between the appraised value and the purchase price out of pocket.

    For example, letā€™s say a buyer agrees to purchase a home for $750,000 and plans to put 10% down. If the home only appraises for $730,000, thereā€™s a $20,000 gap.

    In this case, the buyerā€™s lender will base the loan on the appraised value, not the purchase price. That means the buyer needs to put down 10% of $730,000 ($73,000), plus cover the $20,000 gap themselves.

    So instead of bringing $75,000 to the table, they now need $93,000 to close.
  3. Meet in the middle. In many cases, buyers and sellers will compromise and split the difference.
  4. Challenge the appraisal. Buyers can request a reconsideration of value by submitting additional comparable sales, though changes are not guaranteed.
  5. Walk away

If an agreement canā€™t be reached, the deal may fall through, particularly if there is an appraisal contingency in place.

What Does This Mean for Burlington Buyers and Sellers?

In a market like Burlington, where inventory remains tight and demand is steady, low appraisals are not uncommon in competitive situations.

For sellers, this highlights the importance of not just choosing the highest offer, but the strongest overall terms, and assessing the buyer's financial strength.

For buyers, itā€™s important to understand your financial flexibility and discuss potential scenarios with your agent and lender ahead of time.  

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