In a balanced housing market, roughly 8% to 10% of home appraisals come in below the purchase price, and that share climbs to about 15% when bidding wars push contract prices past what recent sales support. So how often do houses not appraise? Often enough that one in every eleven or twelve deals hits the problem in a normal market, and closer to one in seven when prices are climbing fast. A low appraisal doesn’t kill the deal on its own, but it forces a decision about who covers the gap between the lender’s number and the contract price.
The Odds in a Normal Market vs. a Hot One
The most reliable numbers come from the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. FHFA research found that between 2013 and 2020, 7% to 9% of appraisals came in below the contract sales price in any given year. That rate jumped to 15% in 2021 and 12% in 2022 during the pandemic-era price surge, when aggressive bidding routinely outpaced the comparable sales appraisers had to work with.1FHFA. Underappraisal Disparities and Time Adjustments A separate Fannie Mae analysis of millions of purchase transactions put the overall low appraisal rate at 8.5%.2Fannie Mae. When Appraisers Go Low, Contracts Go Lower
Contract cancellation data lines up with that picture. About 7% of home sales under contract fell through in early 2026, with financing issues, including appraisal gaps, cited as a leading cause. If you’re buying or selling right now, treat a low appraisal as a real possibility, not an unlikely fluke.
Why Appraisals Fall Short
The core reason is a timing mismatch. Appraisers determine value from comparable sales, meaning homes with similar features that sold recently in the same area. Those comps are typically around six months old by the time the appraiser uses them.3FHFA. Underutilization of Appraisal Time Adjustments When prices are climbing 10% or more in a single quarter, six-month-old sales can’t keep up. The buyer is paying today’s price while the appraiser is anchored to yesterday’s data.
Bidding wars widen that gap. A home might attract twenty offers, with the winner paying well above list price on urgency alone. None of that competitive pressure shows up in the appraiser’s analysis, which is strictly data-driven. Appraisers can make time adjustments to account for rising prices, but FHFA research has found these adjustments are significantly underused in practice.3FHFA. Underutilization of Appraisal Time Adjustments
Other contributors: limited inventory in the neighborhood (fewer comps to choose from), homes with unusual features that don’t match well to nearby sales, and renovations that don’t fully show up in comparable properties. In a declining market, older comps may actually reflect higher prices, which can work in the buyer’s favor.
How Your Loan Type Changes the Risk
Not every appraisal follows the same rules. The loan program you’re using shapes both what the appraiser looks at and whether you might avoid an appraisal entirely.
FHA Loans
FHA appraisals go beyond market value. Under HUD Handbook 4000.1, the appraiser must evaluate health and safety concerns, including peeling paint in homes built before 1978, damaged roofing, faulty electrical systems, and poor drainage. Findings like these produce a “subject to” appraisal, meaning the loan can’t close until the seller completes specified repairs. That extra scrutiny can create complications even when the value itself meets the contract price.
VA Loans
VA appraisals include a similar health and safety inspection, plus a unique feature called Tidewater. When a VA appraiser believes the value will come in below the contract price, Tidewater requires notifying the lender before the report is finalized. The buyer’s side then gets two working days to submit additional comparable sales or other market data that might support the higher price.4Veterans Benefits Administration. Circular 26-17-18 – Procedures for Improving Communication With Fee Appraisers in Regards to the Tidewater Process It’s an early-warning system that gives you a chance to influence the outcome before the report locks in.
Conventional Loans and Appraisal Waivers
Conventional appraisals focus on market value without the health and safety layer. More significant for many buyers is the possibility of skipping the appraisal entirely. Fannie Mae’s Value Acceptance program (sometimes called an appraisal waiver) lets certain transactions close without a traditional appraisal when the automated underwriting system judges the collateral risk low enough.5Fannie Mae. Value Acceptance
Not every deal qualifies. Value Acceptance is limited to one-unit properties, excludes manufactured homes and co-ops, and isn’t available for purchases of $1,000,000 or more. The lender’s system decides whether to offer the waiver based on the borrower’s credit profile, loan-to-value ratio, and existing data on the property. You can’t request one; it’s either offered or it isn’t. When it is, both sides avoid appraisal gap risk entirely, though the buyer gives up the independent check on whether the price is reasonable.5Fannie Mae. Value Acceptance
What to Do When the Appraisal Comes in Low
A low appraisal doesn’t mean the transaction is dead, but somebody has to move. The realistic options:
- Negotiate a lower price. Ask the seller to reduce the purchase price to the appraised value. Sellers with limited backup offers or time pressure often agree, especially if the alternative is relisting. Splitting the difference is common.
- Cover the gap in cash. Bring additional money to closing beyond your planned down payment. Your lender will only finance a percentage of the appraised value, so the shortfall comes entirely out of your pocket. On a home that appraised $20,000 below the contract price, that’s $20,000 on top of your down payment and closing costs.
- Use an appraisal gap clause. If your contract has one, you’ve already committed to covering some or all of the gap up to a stated amount.
- Challenge the appraisal. File a reconsideration of value through your lender with better comparable sales or evidence of errors.
- Walk away. If you have an appraisal contingency, you can cancel and get your earnest money back. Without that contingency, walking away likely means forfeiting your deposit.
The right move depends on how much cash you have, how much you want the home, and how much leverage the seller has. In competitive markets, sellers often have backup offers waiting, which weakens your position. In slower markets, the seller may have no realistic choice but to accept a lower number.
The Appraisal Contingency and Gap Coverage
An appraisal contingency is a clause in your purchase contract that lets you back out without losing your earnest money if the home appraises below the agreed price. With it in place, a low appraisal gives you leverage: renegotiate, request repairs, or walk. Without it, you’re locked into the purchase price regardless of what the appraiser says. If you can’t come up with the cash to cover the gap, the seller typically keeps your earnest money as damages for breach of contract.
During the 2020-2022 buying frenzy, waiving the appraisal contingency became almost standard in competitive markets, and many buyers got burned. A buyer offering $385,000 on a home that appraises at $367,000 faces an $18,000 gap the lender won’t finance. Without the contingency, that buyer either finds $18,000 or loses the deposit.
An appraisal gap coverage clause is the middle path. You commit in writing to covering the difference between the appraised value and the purchase price, up to a dollar amount you specify. If the gap exceeds your maximum, you can still back out under the contingency. Offer $400,000 with a $15,000 gap coverage clause: if the appraisal comes in at $390,000, you cover the $10,000 shortfall and the deal closes; at $375,000, the $25,000 gap exceeds your commitment and you can renegotiate or walk. Sellers generally want proof you actually have the funds, so expect to provide bank statements or similar documentation. In neighborhoods where prices have jumped 10% in six months, a gap clause of 3% to 5% of the offer price is reasonable. Going higher starts to look like you’re knowingly overpaying, which leaves you starting homeownership with little equity and no cushion for repairs.
Challenging a Low Appraisal
If you believe the appraisal is wrong, you can request a reconsideration of value (ROV) through your lender. Federal interagency guidance published in 2024 formalized the process and set requirements for how lenders handle these requests.6Federal Register. Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations Fannie Mae and Freddie Mac also published joint requirements for borrower-initiated ROVs in 2024.7Fannie Mae. Reconsideration of Value (ROV)
A successful ROV usually rests on one of two things: factual errors in the report, or better comparable sales the appraiser didn’t use. Factual errors include wrong square footage, a missing bedroom or bathroom, or failure to account for a major renovation. Better comps means recent sales of similar homes, closer to the subject property, that sold for higher prices than the ones the appraiser chose. Simply disagreeing with the number isn’t enough. You need data.
You submit your evidence to your lender, not directly to the appraiser, and the lender forwards it. Federal law prohibits anyone with a financial interest in the transaction from pressuring an appraiser to hit a specific value, but the same law explicitly allows asking the appraiser to consider additional comparable sales, provide further explanation, or correct errors.8Office of the Law Revision Counsel. 15 USC 1639e – Appraisal Independence Requirements The appraiser reviews your evidence and either adjusts the value, explains why the original stands, or issues a revised report. If the appraiser rejects the new data, the lender’s quality control team makes the final call.
For FHA loans, there’s an added path. If the lender’s underwriter determines the original appraisal is materially deficient and the appraiser can’t or won’t fix it, the lender can order a second appraisal, and under current HUD policy the lender (not the borrower) pays for it.9HUD. Rescinding Multiple Appraisal Policy Related Mortgagee Letters Spending time and effort on a second opinion is a lot cheaper than overpaying by $20,000 on a home.