An appraisal isn't a formality that confirms whatever price a buyer and seller already agreed to — it's an independent estimate of value that your lender relies on to decide how much it's actually willing to lend against the property. When it comes in below the contract price, the resulting gap is one of the most common reasons a deal falls apart, or gets renegotiated at the last minute.
An appraiser inspects the property's condition, size, and features, then compares it to recent sales of similar homes nearby — comparable sales, or "comps" — adjusting for differences in size, condition, location, and features to arrive at an estimated market value.
The appraisal is ordered for the lender's benefit, not the buyer's or seller's — it exists so the lender isn't loaning more than the property is actually worth as collateral. Federal appraiser-independence rules generally prohibit the lender, loan officer, or real estate agents involved in the transaction from pressuring the appraiser toward a specific number.
If the appraisal comes in below the agreed purchase price, a lender will typically only lend based on the lower of the appraised value or the purchase price — not the higher one. That gap between what you agreed to pay and what the lender will actually finance has to be covered somehow, or the deal has to change.
In competitive markets where buyers waive appraisal contingencies to make an offer more attractive, this gap becomes the buyer's problem entirely — with no contractual way to renegotiate or walk away without losing the earnest money deposit. Understand exactly what contingency you're waiving, if any, before you do it.
Federal regulators, through the interagency PAVE (Property Appraisal and Valuation Equity) initiative, have acknowledged that appraisal bias — a property being undervalued based on factors unrelated to its actual condition or comps — is a documented, real problem, not merely a borrower complaint.
If you believe an appraisal was affected by bias rather than a legitimate valuation disagreement, you generally have the right to request a reconsideration of value and, separately, to file a complaint with the appraisal management company, your lender, or your state's appraiser licensing board. Document your case with specific, comparable evidence rather than a general objection to the number.
This is general educational information, not financial, legal, or tax advice. Rules and figures change, and specifics vary by lender, loan type, credit profile, and location. Verify anything that affects a decision with your servicer, lender, or a licensed professional.