What Happens to My Offer If the Home Doesn't Appraise?
A Kansas City Mortgage Lender Breaks Down Appraisal Gaps
When a home appraisal comes in lower than the agreed purchase price, it raises an important question for buyers:
"What happens to my offer if the house I'm under contract to buy doesn't appraise?"
The short answer: it depends on the numbers, your cash position, and the wording in your purchase agreement. Let's break it down.
What Is an Appraisal Gap?
An appraisal gap happens when the appraised value of the home is lower than the agreed-upon purchase price.
Example:
- •Purchase price: $400,000
- •Appraised value: $380,000
- •Appraisal gap: $20,000
This gap matters because…
How Mortgage Lenders Determine Loan Amounts
Mortgage lenders base the loan amount on the lower of:
- the purchase price, or
- the appraised value
Using the example above, even though you agreed to pay $400,000, the lender treats the home as if it's worth $380,000 when calculating the loan-to-value ratio.
That difference has to be addressed somehow - and that's where appraisal gap decisions come into play.
Appraisal Gaps When Cash to Close Is Tight
If available cash is tight, an appraisal gap usually leads to one of two outcomes:
Renegotiating the Purchase Price
The buyer and seller agree to reduce the price closer to (or equal to) the appraised value.
Buyer Brings Additional Funds to Closing
If the seller won't lower the price, and the buyer still wants to proceed, the buyer may need to bring extra cash to closing to cover the gap.
If neither option works and the contract allows for it, the buyer may have the option to cancel - something that should be confirmed with their REALTOR® or real estate attorney.
What If You're Making a Larger Down Payment?
If you're planning a more sizeable down payment, an appraisal gap may not change the loan amount or total cash needed at closing. However, even if those dollar amounts stay the same, the loan structure itself can change in important ways.
When you still choose to proceed with the purchase at the higher price (either because the seller won't renegotiate or because you're willing to pay above appraised value), here are the key considerations:
Important Considerations When Paying Above Appraised Value
Even if the dollar amounts don't change, the loan structure can.
Loan-to-Value (LTV) Ratio Changes
Your loan is now being measured against a lower appraised value, not the purchase price.
That means:
- •The LTV could be higher than originally planned
- •This may impact the loan's rate pricing
Potential Changes to Interest Rate
If the LTV increases, your interest rate could change compared to the original loan design.
PMI May Be Added or Increased
If the new LTV exceeds 80%, private mortgage insurance (PMI):
- •Could be added when it wasn't originally expected, or
- •Could increase in cost
This is why it's critical to review appraisal outcomes with your lender before deciding how to move forward.
How Appraisal Gaps Are Handled in Kansas City Contracts
Most Kansas City home purchases involving a REALTOR® use KCRAR's standard contract language, which includes specific appraisal protection for buyers.
BUYER and SELLER will have _____ calendar days (typically 5 days) after SELLER'S receipt of BUYER'S appraisal report ("Appraisal Negotiation Period"), to reach an agreement resolving the appraisal value and/or purchase price.
During this period, SELLER or BUYER may seek a reconsideration of value by the appraiser. If such reconsideration finds a value equal to or greater than the Purchase Price, or if BUYER and SELLER sign an Amendment resolving the difference between the appraised value and the Purchase Price, the transaction will move forward to Closing.
If no resolution is reached prior to the expiration of the Appraisal Negotiation Period, then after the expiration of the Appraisal Negotiation period, either party may cancel this contract by written notice to the other and BUYER'S Earnest Money will be subject to the provisions of the Earnest Money and Additional Deposits paragraph of the Contract.
Here's what that means to you:
Appraisal Negotiation Period
Once the seller receives the appraisal, both buyer and seller have a set number of days (typically 5 days) to reach an agreement.
During this time:
- •Either party may request a reconsideration of value from the appraiser
- •The buyer and seller can negotiate the price or terms
What Allows the Deal to Move Forward
The transaction continues if:
- •The appraiser reconsiders value and changes the appraised value to meet or exceed the purchase price, or
- •Both parties negotiate and agree on revised terms (most commonly either a reduced sales price or the buyer proceeding at the original price) and sign an amendment resolving the difference
If No Agreement Is Reached
If the appraisal negotiation period expires with no resolution:
- •Either party may cancel the contract
- •The buyer's earnest money is handled according to the contract's earnest money provisions
This clause is one of the most important buyer protections in Kansas City real estate — and it's a big reason appraisal gaps don't automatically kill deals.
The Bottom Line on Appraisal Gaps
An appraisal gap doesn't mean your deal is dead - but it does mean decisions need to be made quickly and strategically.
The right move depends on:
- Your cash position
- Your down payment strategy
- Your loan structure
- Your contract language
- And how much the home is worth to you long-term
If you're buying in Kansas City, looping in your lender early can help you understand your options before you're forced to choose between them.
Why Work With a Local Kansas City Lender?
When navigating appraisal gaps and complex purchase decisions, working with a local lender means:
Direct access to your lender (not a call queue)
Clear explanations in plain English
Knowledge of local market conditions and contract language
Strategic guidance on your specific situation
A local reputation built on delivered results
This information is provided for general educational purposes and does not replace guidance from a licensed real estate professional or real estate attorney.
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