What if the house appraises for less than the offer?

Written by Anytime EstimateFebruary 11th, 20224 minute read

The appraisal contingency is a provision in the sales contract that enables the buyer to cancel if the property appraises for less than the purchase price.

If the house fails to appraise owing to its condition or value, the earnest money will be refunded to the buyer.

A professional real estate appraiser does the appraisal. The appraiser establishes the value of the property by comparing it to previously sold properties in the area. The appraiser will conduct a broad condition analysis of the property as part of the valuation process.

While appraisers are not house inspectors, they are educated to identify possible issues. For instance, if the appraiser notices sparking wires in the electrical box, he or she will request an evaluation by a licensed electrician. A roofer will be needed to examine roof leaks. Following completion, the appraiser submits the report to the lender for review.

An appraisal is a professional opinion of the market value of a property, not a declaration of fact.

Can I legally get a copy of my home appraisal?

The Consumer Financial Protection Bureau (CFPB) states that you are legally entitled to a free copy of your property appraisal for a first-lien mortgage (CFPB).

Lenders are obliged to provide you with a copy of the appraisal report three days prior to the loan closing.

FHA, VA, and USDA Amendatory Contingency

The buyer, seller, and real estate agent(s) must all sign the FHA, VA, or USDA mortgage Amendatory Clause/Real Estate Certification Form. Generally, the amendatory form is included into the sales contract.

The parties to the sales contract must sign the amendatory form as an amendment to the sales contract, if it is not already included in the sales contract if the buyer is receiving a loan backed by the Federal Housing Administration, Veterans Administration, or the United States Department of Agriculture. If the home's appraised value is less than the sales price, the buyer may utilize the amendatory form to declare the contract invalid.

The buyer, seller, and real estate agent (s) must all sign the Amendatory Clause/Real Estate Certification Form as part of the FHA, VA, and USDA mortgages. Generally, the amendatory form is included within the sales contract.

If the buyer obtains financing via the FHA, VA, or USDA, the parties to the sales contract must sign the amendatory form as an addendum to the sales contract if it is not included in the sales contract. If the home's appraised value is less than the sales price, the buyer may use the the amendatory form to declare the contract invalid.


It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the purchaser has been given in accordance with HUD/FHA or VA requirements a written statement issued by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement

Lender, setting forth the appraised value of the property of not less than $ _________. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable.

Source: Department of Housing and Urban Development

Q&A: Appraisal Contingency

Q. Is it true that appraisals are undervalued?

A. While appraisals generally agree with market value, market value often surpasses market value in a seller's market owing to competition.

Q. Is it necessary for the buyer to reveal the appraisal to the seller?

A. Unless specified in the sales agreement or required by state law, the buyer is not obliged to disclose the appraisal.

Q. How long does an appraisal contingency last?

A. Two weeks is a reasonable length of time to have the home appraised in a normal market, but allow at least four weeks when buyers are lining up to make an offer on a house.

Q. Is it usual to include a contingency in the appraisal process?

A. Homebuyers seeking financing often request appraisal contingencies.
Even if the home buyer does not request one, the lender will need one to guarantee that the property is not overpriced.

Q. What does the term "appraisal contingency" mean?

A. An appraisal contingency implies that the sale is conditional upon the appraised value being equal to the sales price and the overall structural condition being met.

Q. What if the appraised value of the home is less than the offer price?

A. If the appraisal determines that the sales price is incorrect, the buyer will request that the seller reduce the price to the appraised value.

Q. What happens if an assessment criterion becomes invalid?

A. If the appraisal contingency expires, the buyer will not be permitted to withdraw from the transaction due to a low sales price or perhaps bad condition.
However, if the home appraises for less than the sales price, the lender may deny the home buyer's application.

Q. What is a mortgage contingency?

A mortgage contingency is a clause in a sales contract that enables the buyer to back out of the deal if he or she is unable to get financing within the time period stipulated in the contract.

Q. Who initiates the appraisal process?

A. The lender orders the appraisal.

Q. Why is it important to do a second appraisal?

A. If the underwriter has reservations regarding the correctness of the appraisal, he or she will seek a second appraisal.

Q. If my mortgage application is denied, will I forfeit my earnest money deposit?

A. If the sales agreement is correctly written and contains the standard mortgage contingency, you will not lose your earnest money.

Q. Will the seller accept a lower offer after a low appraisal?

A. Typically, sellers lower their sales price to match a low appraisal, but each circumstance is unique.