A higher appraisal gives you instant equity without changing your credit line or down payment. A lower appraisal bases financing on the appraised value, requiring you to cover the gap, renegotiate, or walk away if allowed.
- If it appraises higher: Great news! You walk into your new home with instant equity. Your credit line and down payment will still be based on your agreed-upon purchase price and won’t change, but your financial position is immediately stronger.
- If it appraises lower: Your credit line will be based on the appraised value, not the purchase price. If the home appraises for less than what you agreed to pay, you generally have three options:
- Pay the difference out of pocket in cash at closing (known as covering the appraisal gap).
- Renegotiate the purchase price with the seller to match the appraised value.
- Walk away from the purchase (provided your contract includes an appraisal contingency). Keep in mind that renegotiating can significantly extend the time to close.