What Happens If the Appraisal Comes In Low? A Colorado Guide for Buyers and Sellers

The short answer

If the appraisal comes in lower than the purchase price, the buyer’s lender will usually base the loan on the lower appraised value, not on the price in the contract. That leaves a gap. In Colorado, the standard contract gives a buyer with a conventional loan, or a cash buyer who gets an appraisal, the right to terminate or to object and negotiate, as long as they act by the deadlines written into the contract. From there, the price can come down, the buyer can bring more cash, the two sides can meet in the middle, the buyer can challenge the appraisal through the lender, or the deal can end.

Why a low appraisal changes the math

An appraisal is an opinion of the home’s market value from a licensed or certified appraiser, ordered on behalf of the buyer or the buyer’s lender. The lender uses it to make sure the home is worth enough to secure the loan. Fannie Mae’s Selling Guide says that on a purchase, the property value used to figure the loan-to-value ratio is the lower of the sales price or the current appraised value. In plain terms, the lender won’t lend against value the appraiser didn’t find.

Here’s a simple example with hypothetical round numbers, not a real sale. Say a buyer agrees to pay $1,000,000 and plans to put 20% down, so the loan would be $800,000 and the down payment $200,000. The appraisal comes back at $950,000. If the buyer keeps the loan at 80% of the appraised value, the loan tops out at $760,000. To close at the original price, the buyer now needs $240,000 in cash instead of $200,000. That extra cash is what people mean by an appraisal gap.

On a jumbo loan, each lender sets its own appraisal and down payment rules, and some are stricter on larger loans. My guide to jumbo loan limits in Colorado explains what to ask lenders up front.

What Colorado’s contract says about a low appraisal

Most Colorado home sales are written on the Real Estate Commission’s CBS1 Contract to Buy and Sell Real Estate (Residential). Section 6 covers the appraisal, and three dates in the deadline table (§3.1) control it: the Appraisal Deadline, the Appraisal Objection Deadline and the Appraisal Resolution Deadline. My guide to Colorado real estate contract deadlines covers how those dates fit with the rest of the contract.

For a conventional or other loan, or a cash purchase, §6.2.1 applies. If the appraised value is less than the purchase price, or the appraisal isn’t received by the Appraisal Deadline, the buyer may do one of two things on or before the Appraisal Objection Deadline:

• Terminate. The buyer sends the seller a written Notice to Terminate.
• Object. The buyer delivers a written Appraisal Objection with a copy of the appraisal or written confirmation from the lender that the appraised value is below the price.

If the buyer objects and the two sides haven’t agreed in writing to a settlement by the Appraisal Resolution Deadline, the contract terminates on that deadline, unless the seller receives the buyer’s written withdrawal of the objection first. Withdrawing the objection means the buyer moves forward on the original terms.

A few details matter a lot:

• Missing the deadline waives the right. Under §24.1, a Notice to Terminate that arrives after the deadline doesn’t terminate the contract, and the buyer is treated as accepting the matter.
• Earnest money. When the contract terminates under a right like this one, §24.2 says the earnest money is returned to the buyer.
• The loan provision isn’t a back door. Under §5.2.2, a buyer can’t use the New Loan Availability Deadline to terminate because of the appraised value. The appraisal deadlines are the place for that.
• FHA and VA loans are different. The appraisal deadlines don’t apply to FHA-insured or VA-guaranteed loans. Those use federal language in §6.2.2 and §6.2.3, which lets the buyer walk away without losing earnest money if the FHA appraised value comes in below the amount written into the FHA clause, or if the price is above the VA’s reasonable value. The buyer can also choose to go ahead anyway.
• Lender repairs. If the appraisal or lender requires repairs, §6.3 says the contract terminates three days after the seller receives those requirements, or at closing if that’s sooner, unless the parties agree in writing, the work is done or the buyer waives it.
• Who pays for it. §6.4 has a box for whether the buyer or the seller pays for the appraisal.

Your options when the appraisal comes in low

Once the number is in, buyers and sellers usually land on one of these:

A seller credit can sometimes be part of the answer, but it doesn’t raise the appraised value, and lenders cap how much a seller can contribute. My guide to seller concessions in Colorado explains how those limits work. Whatever you agree to, put it in writing before the Appraisal Resolution Deadline. If you need more time, both sides can agree in writing to move the dates.

How to challenge a low appraisal

You can’t call the appraiser and ask for a higher number. Appraiser independence rules exist for good reason, so the request goes through the lender. Here’s how it works:

• Get the full report. Under the federal Equal Credit Opportunity Act rules (12 CFR 1002.14), a lender has to give you a copy of the appraisal promptly once it’s done, or at least three business days before closing, whichever comes first, unless you agree in writing to waive that timing.
• Read it closely. Look for factual errors such as the wrong square footage, a missed bedroom or bathroom, a finished basement listed as unfinished, or comparable sales from a very different neighborhood.
• Ask for a reconsideration of value. For loans sold to Fannie Mae, lenders must have a borrower-initiated reconsideration of value process and explain it when they deliver the appraisal. You get one request per appraisal. It has to point out what’s wrong or unsupported, can include up to five other comparable sales with their sources, such as MLS numbers, and should explain why they support a different value.

This is where your agent earns their keep. I pull the closed sales that best match the home, note the upgrades and features the report may have missed, and give the buyer’s lender clean, sourced information to work with. A request built on real sales has a far better chance than one built on frustration. It won’t always change the number, so keep negotiating in parallel and watch the contract dates.

What sellers can do about appraisal risk

Sellers don’t order the appraisal, but you can make the appraiser’s job easier and lower the odds of a surprise:

• Price from real sales. An offer far above recent comparable sales is exciting, but it may not survive the appraisal. I build list prices from closed sales, not from wishful comparisons. My guide to how long it takes to sell a house in Colorado shows where pricing fits in the timeline.
• Document the upgrades. A short list of improvements, with dates and what they cost, helps the appraiser see work that photos don’t show.
• Have the home ready. Make sure the appraiser can get into every room, the garage, the mechanical areas and any outbuildings.
• Weigh the offers with appraisal risk in mind. A larger down payment or appraisal gap terms can make a slightly lower offer the stronger one.

If a low appraisal does come in, think about your next buyer before you say no. A new buyer’s lender will order its own appraisal, and it may land in the same place. That’s worth weighing against your timeline and the cost of selling.

Why luxury homes are harder to appraise

Appraisers value homes mostly by comparing them with similar homes that sold recently nearby. That works well in a neighborhood full of similar floor plans. It gets harder at the top of the market, where homes are often custom, sit on larger lots or acreage, have views that are hard to put a number on, or include features like guest suites, wine rooms or barns. There may be only a few truly comparable sales in the area, and they may not be recent.

That’s why I spend extra time on pricing for luxury listings and on appraisal planning for luxury buyers. If you’re shopping for land, my guide to buying acreage and horse property near Denver covers some of the extra due diligence, and my guide to buying a luxury home in Denver walks through financing and offers. Sellers can find my approach in how to sell a luxury home in Denver.

How buyers can plan ahead

The best time to deal with a low appraisal is before you write the offer:

• Know your cushion. Decide how much extra cash, if any, you’d be willing to bring if the appraisal comes in low, and keep it separate from your closing costs.
• Set the dates with your lender. Ask how long the appraisal usually takes before you fill in the Appraisal Deadline, so you aren’t forced to decide without the report.
• Think carefully about appraisal gap terms. In a competitive situation, some buyers offer to cover part or all of a gap. That kind of term goes in Additional Provisions (§30), which the Commission hasn’t approved as standard language, so the wording has to be precise.
• Cash buyers still have a choice. §6.2.1 applies to cash purchases too. If you’d like that protection, get an appraisal and fill in the dates. If not, you can leave them blank or mark them N/A.

A low appraisal and a problem found at inspection can hit the same week, so it helps to have a plan for both. My luxury home inspection checklist covers the inspection side.

How I help buyers and sellers with appraisals

I grew up in Castle Rock, and I help luxury buyers and sellers across Denver, Lakewood, Castle Pines, Highlands Ranch, Parker, Castle Rock, Broomfield and Colorado Springs. I work with Sean Gribbons at The Gold Standard Brokerage; Sean founded the brokerage, and we run it together. Before you sign, I’ll look at how the price compares with recent sales, help you set appraisal dates that fit your lender and, if the number comes in low, pull the data and negotiate the next step with you. Buying? Start with my guide to buying a home in Denver. Selling? See my pages for selling in Denver, Lakewood, Castle Pines, Highlands Ranch, Parker and Castle Rock, or explore Broomfield and Colorado Springs. You can also call or text me at 720-357-5785 or use the inquiry form on this page.

This guide is general information, not legal or lending advice. Contract references are to the Colorado Real Estate Commission’s CBS1 residential contract. Loan-to-value and reconsideration of value rules come from Fannie Mae’s Selling Guide, and appraisal delivery rules from 12 CFR 1002.14. Your lender’s rules and your contract’s terms control your transaction.