The Appraisal Came in Low—Now What?

In a fast-moving market like San Jose, it’s not uncommon for buyers to bid over asking price—especially in multiple-offer situations. But what happens when the appraisal doesn’t match the offer?

A low appraisal can throw a wrench into a deal, cause buyer panic, and leave sellers scrambling to renegotiate. Whether you're a first-time buyer or listing your long-time home, understanding what to do when an appraisal comes in low is crucial to keeping the deal alive.

Let’s walk through the reasons why this happens, what your options are, and how both sides can navigate this all-too-common scenario in Silicon Valley real estate.

What Is a Home Appraisal, and Why Does It Matter?

A home appraisal is an independent assessment of a property’s fair market value, typically conducted after a buyer’s offer has been accepted. It’s a required step when the buyer is financing the purchase with a mortgage.

Lenders use appraisals to ensure they aren’t lending more than the home is worth.

In short:

• If a buyer offers $1.3 million but the home appraises at $1.2 million…

• The lender will only fund the loan based on the $1.2 million value.

• That $100,000 difference? That’s the appraisal gap—and someone has to cover it.

Why Do Appraisals Come in Low in San Jose?

San Jose’s real estate market moves fast—sometimes faster than appraisers can keep up. Homes often sell above asking price, and bidding wars are common.

Common reasons for low appraisals:

• Rapidly rising home prices outpace comparable recent sales (“comps”).

• Overly aggressive offers from buyers desperate to win the deal.

• Appraisers unfamiliar with the local micro-market (e.g., nuances between neighborhoods like Almaden Valley vs. Evergreen).

• Condition discrepancies—if the appraiser deems the home in worse condition than expected.

Even in a seller’s market, appraisals are based on data—not emotions or bidding wars.

What Are Your Options if the Appraisal Is Low?

Both buyers and sellers have several options when faced with a low appraisal. What’s possible often depends on how the purchase agreement was written and whether the appraisal contingency is in place.

Option 1: Renegotiate the Purchase Price

The most common solution is to meet in the middle.

• Buyers ask sellers to lower the price to match the appraised value.

• Sellers may agree, especially if the gap is small or there are no backup offers.

• In some cases, both sides split the difference.

In San Jose’s competitive market, sellers may be resistant—but if the next buyer also needs financing, they could face the same issue.

Option 2: Buyer Pays the Appraisal Gap in Cash

If the buyer has enough liquidity, they can cover the difference out of pocket.

For example:

• Sale price: $1.3M

• Appraisal: $1.2M

• Loan: Based on $1.2M

• Buyer brings $100K cash to cover the shortfall

This can be risky for the buyer, especially if the market cools and they’ve overpaid. However, in bidding wars, many Bay Area buyers anticipate this scenario and are prepared.

Option 3: Challenge the Appraisal

Buyers (or their agents) can request a reconsideration of value, especially if they believe the appraisal is flawed.

Reasons to challenge:

• The appraiser used outdated or incorrect comps.

• Key upgrades or features weren’t considered.

• The appraiser wasn’t local and lacked area knowledge.

To challenge:

• Submit a list of better comparable sales.

• Provide a breakdown of recent upgrades or improvements.

• Make sure the request is detailed and professional.

While rare, appraisers do sometimes adjust their valuation based on valid evidence.

Option 4: Cancel the Deal (If Contingency Allows)

If the contract includes an appraisal contingency, the buyer can walk away without losing their deposit.

In high-stakes San Jose sales, some buyers waive the appraisal contingency to win bidding wars. If that’s the case, walking away may mean losing thousands in earnest money.

For sellers, a low appraisal without a contingency means the buyer is still on the hook—unless they breach contract.

What Is an Appraisal Contingency, and Should You Use One?

An appraisal contingency is a clause in the purchase agreement that allows the buyer to cancel or renegotiate if the home doesn’t appraise at or above the purchase price.

Benefits for Buyers:

• Protects against overpaying

• Offers a legal exit if financing falls short

Drawbacks in Competitive Markets:

• Makes your offer less attractive

• Sellers may skip your bid in favor of offers with waived contingencies

In San Jose’s market, it’s common for buyers to waive this contingency—but that comes with risk. Make sure you understand the consequences and consult with your real estate agent before making that decision.

How Sellers Can Prepare for Appraisal Issues

If you're selling a home in San Jose, you can take steps to reduce the risk of a low appraisal:

• Price your home strategically, even if you expect multiple offers.

• Provide the appraiser with a list of recent upgrades, permits, and features.

• Meet the appraiser with comps your agent has used to justify the sale price.

• Ensure the home is show-ready, clean, and in good condition.

If your home sells for a record-high price in your neighborhood, there's a good chance the appraiser may struggle to find support for that number.

The Bottom Line: Don’t Panic—Get Strategic

A low appraisal in San Jose isn’t the end of the world—but it does require quick thinking and solid advice.

For buyers:

• Know your financial limits.

• Understand the risk of waiving contingencies.

• Have a backup plan if the gap is too large.

For sellers:

• Be ready to negotiate, especially if it’s not a cash buyer.

• Anticipate appraisal risk if you accept a high offer.

• Work closely with your agent to prep for the appraiser’s visit.

Most importantly—stay calm and focused on the long-term goal. With the right strategy, even a low appraisal can be overcome.

Your Game Plan for Appraisal Gaps in San Jose

Appraisals may feel like a technicality, but in reality, they can make or break your home purchase or sale. In a city like San Jose—where home values are high and bidding wars are the norm—appraisal gaps are increasingly common.

The good news? Buyers and sellers have options. Whether you renegotiate, cover the difference, or challenge the appraisal, a smart game plan and the right support can turn a stressful situation into a successful closing.