What happens if the appraisal comes in low?

Lenders size loans against the lower of purchase price or appraised value, because the property is their collateral. If you agreed to 500,000 and the appraisal comes in at 480,000, the lender treats 480,000 as the basis, and the 20,000 difference becomes your problem on top of your down payment. This is why appraisal gaps became a defining feature of hot markets, where competitive offers pushed prices above what comparable sales could support.

There are four realistic responses. Pay the difference in cash, which is what an appraisal gap guarantee in your offer commits you to and which should never be signed without the funds actually available. Renegotiate with the seller, which succeeds more often than buyers expect, since the seller faces the same problem with the next financed buyer and the appraisal is now a documented fact. Split the difference, which is the common settlement. Or terminate under an appraisal contingency if you kept one, recovering your earnest money. You can also challenge the appraisal through a reconsideration of value, supplying comparable sales the appraiser missed, though success rates are modest and the process requires genuine errors rather than disagreement.

Two adjacent points. A low appraisal is information, not merely an obstacle, since it is an independent professional saying you agreed to pay more than the market supports, and treating that as a problem to be engineered around rather than a signal to reconsider is how people overpay. And appraisal bias is a documented issue: federal agencies have found evidence of undervaluation in majority-Black and Hispanic neighborhoods, and there is a formal reconsideration of value process for buyers and homeowners who believe an appraisal was affected by it, with complaints accepted by HUD and the CFPB.