May 5, 2021

Low Appraisal When Selling Your Home in Montgomery County

Home appraised below the sale price? Here's exactly what Montgomery County sellers should do, and how to avoid a low appraisal killing your deal.

If your home appraises lower than the price a buyer agreed to pay, you have options, and none of them require you to simply eat the difference. First, you are never obligated to sell for the appraised value or for anything less than the agreed-upon sales price. Second, depending on how your contract was written, the buyer may be the one on the hook to cover the gap in cash. Third, if the buyer can’t or won’t cover it, you and the buyer can renegotiate the price and terms, or the deal falls apart and your home goes back on the market. Which of these applies to you comes down to one thing: what kind of appraisal contingency was in your contract to begin with. I’m Kevin Grolig, real estate agent with Compass in Potomac, Maryland, and this is exactly what I walk every Montgomery County seller through before they sign a contract.

Why are appraisals such a big problem right now?

Appraisals are a problem because appraisers are legally required to look backward while the market is racing forward. In a normal market, a home sells close to list price, a buyer lines up financing, and the appraisal quietly confirms the number everyone already expected. That is not what’s happening. Home values in Montgomery County have jumped somewhere between 15 and 25 percent over the past year, and homes are routinely selling in days with multiple offers, often 2 to 20 percent above list price. The problem is that appraisers can’t use today’s sale to justify today’s price. They’re required to compare your home to closed sales from the last three to six months, a window when prices were meaningfully lower. That gap between where the market is right now and where the comps say it “should” be is exactly where low appraisals come from.

What does an appraisal contingency actually protect against?

An appraisal contingency protects the buyer if the home appraises below the agreed sales price. It gives the buyer the right to either walk away from the contract or come back to the table and try to renegotiate the price and terms. It does not obligate you, the seller, to accept the appraised value or anything lower than what you agreed to in the contract. If you and the buyer can’t agree on new terms after a low appraisal, the buyer is free to terminate and go find another home, and yours goes back on the market. That’s the baseline. The real question for sellers today is whether that contingency stays in the contract at all, and in what form.

What are my options if a buyer wants an appraisal contingency?

You have three realistic options, ranked from most favorable to you as the seller to least favorable.

No appraisal contingency at all.This is the strongest position for a seller, and in this market it’s achievable when your home generates real demand and multiple offers. Removing the contingency doesn’t mean no appraisal happens, it still will. It means that if your home sells for a given price and appraises for less, the buyer is on the hook to bring the difference to closing in cash. A buyer only agrees to this if they’re paying cash outright or have enough reserves sitting on the sidelines to cover a shortfall.

An appraisal contingency with a buyer guarantee (the hybrid option).This is a middle ground. The buyer keeps a contingency, but their exposure is capped, meaning they agree in advance to cover up to a certain dollar amount if the appraisal comes in low, and only beyond that cap does the standard contingency protections kick back in. It gives you some protection as the seller without leaving the buyer holding a blank check.

A full appraisal contingency.This is the traditional, default version. If the home appraises low, the buyer can terminate or renegotiate, full stop. There’s nothing wrong with this option, it’s what nearly every financed deal used to look like before this market, but it gives you the least leverage if the number comes in short.

How do I know if a buyer can actually cover a low appraisal?

You know by verifying their cash reserves in writing, not by trusting a pre-approval letter alone. A mortgage pre-approval letter only tells you the buyer qualifies for financing, it says nothing about whether they have extra cash sitting in reserve to cover a gap if the appraisal comes in low. Before you agree to waive or cap an appraisal contingency, require a signed financial information sheet from the buyer alongside their pre-approval letter. That document is what actually shows you they have the reserves to back up their offer. Skipping this step is how sellers end up back on the market weeks later after a buyer who looked strong on paper couldn’t actually cover the shortfall.

What can I do to avoid a low appraisal problem in the first place?

You avoid it by creating enough demand that buyers compete to waive or cap the contingency for you. The only way you’re realistically going to get a contract free of an appraisal contingency, or capped in your favor, is high demand and multiple offers. If your home sits on the market for a few weeks or longer with soft interest, it’s essentially impossible to get a buyer to waive that protection, they have no reason to take on the risk. That’s exactly why pricing strategy, home condition, and marketing matter so much right now. A home in tip-top condition that’s properly marketed doesn’t just sell for more, it also tends to shake loose those pesky contingencies because buyers are competing hard enough to take on more risk to win the deal. If you want a full breakdown of how to position your home to sell at the top of the market, myguide to selling a homewalks through the entire process.

Frequently Asked Questions

Do I have to accept the appraised value if it comes in lower than my sale price?

No. You are never obligated to sell for the appraised value or anything below your agreed sales price. If new terms can’t be worked out, the buyer can walk and your home returns to market.

Can I remove the appraisal contingency entirely?

Yes, but only realistically if your home is generating strong demand and multiple offers. Buyers will only agree to this if they’re paying cash or have enough reserves to cover a potential gap.

What’s the difference between a full contingency and a capped one?

A full contingency lets the buyer terminate or renegotiate with no limit if the appraisal comes in low. A capped, or hybrid, contingency limits how much the buyer must cover before their protections kick back in, giving you partial protection as the seller.

Why are appraisals coming in low so often in this market?

Because appraisers must use closed comparable sales from the past three to six months, while home values here have climbed 15 to 25 percent in the last year. That lag is the root cause of most low appraisals right now.

How can I protect myself if a buyer says they’ll cover a low appraisal?

Don’t just rely on their mortgage pre-approval letter. Require a signed financial information sheet showing their actual cash reserves before you agree to any waived or capped contingency.

If you’re weighing whether to list right now and want a straight answer on pricing, contingencies, and what your home will realistically sell for, let’s talk. Reach out through mycontact pageor grab time on my calendar below.

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