A home sale can be fully agreed and still collapse when the appraisal comes in low. The cause is a difference between what a buyer will pay and what a lender will finance.
The lender finances value, not price
Mortgage underwriting sizes the loan against the lesser of the purchase price and the appraised value, because the property is the collateral securing the debt.
If the appraisal lands below the contract price, the loan shrinks accordingly. The buyer's down payment must grow by the difference to keep the same purchase price intact.
Nothing about the contract changes automatically. The gap simply becomes cash the buyer must produce, and many buyers have no reserves left after the planned down payment.
Appraisals look backward by design
An appraiser estimates value largely from recent closed sales of comparable properties nearby, adjusted for differences in size, condition, age and features.
Closed sales reflect contracts signed weeks or months earlier, so in a market moving quickly upward the comparable set lags what buyers are currently agreeing to pay.
The gap is therefore most common in fast markets, where competitive bidding produces prices that no completed sale has yet validated for the appraiser.
The contract decides who absorbs the difference
Purchase agreements commonly include an appraisal contingency allowing the buyer to renegotiate or withdraw, usually with the earnest money returned, if value comes in short.
In competitive markets buyers sometimes waive that contingency or commit in advance to cover a stated gap amount, which strengthens the offer and transfers the risk to them.
Contract forms, contingency language and earnest money rules vary by state and by local practice, so the specific document controls rather than any general summary.
Both parties have limited options
The seller can reduce the price to the appraised figure, the buyer can bring additional cash, the two can split the difference, or the deal can end.
A reconsideration of value can be requested when the appraiser missed a relevant sale or made a factual error about the property, though outcomes are uncertain.
Switching lenders rarely helps by itself, since a new appraisal costs time and money and often reaches a similar conclusion using the same comparable sales.
Cash offers avoid the mechanism entirely
A buyer paying cash has no lender imposing a value ceiling, which is one reason cash offers are treated as stronger even at the same price.
Sellers weighing offers are comparing certainty of closing as much as headline price, and financing contingencies are where transactions most often fail.
Understanding that the appraisal serves the lender rather than the buyer clarifies why the number carries so much weight in a transaction neither party controls.