Updated August 16, 2026
A low appraisal does not automatically kill the deal, but it does change the arithmetic, because the lender sizes the loan against the appraised value rather than the contract price. If a buyer agreed to $6,000,000 at 65% leverage and the appraisal comes in at $5,700,000, the loan shrinks by roughly $195,000 and the buyer has to cover that with additional equity, get the price reduced, or walk. What happens next depends almost entirely on what the purchase agreement says about financing and appraisal contingencies — and on whether the appraisal is actually wrong or the price was.
The buyer brings more equity. Common with well-capitalized buyers who want the building and believe in the value. Nothing changes for the seller.
The price is reduced to the appraised value. The most common outcome when the buyer's equity is tight and the seller wants to close.
The gap is split. The seller comes down partway, the buyer brings partway. This is where most negotiated appraisal gaps land in practice.
The buyer terminates. Available if the contract has a financing or appraisal contingency still in effect. Whether the deposit is returned depends on the contract terms and where the timeline stands.
Understanding the cause tells you whether to challenge or concede.
Comparable sales are thin. In a low-volume market, the appraiser may be reaching for older or less similar sales, which drags value toward stale pricing.
In-place income is below market and the appraiser weighted income heavily. LA rent-stabilized buildings frequently sell at prices that reflect the below-market rent upside. An appraiser applying a straight income approach to depressed in-place rents will land under the market price. This is the single most common cause on rent-controlled buildings.
Unpermitted units were excluded. Correctly. Income from units that do not appear in the permit record generally does not support value.
Deferred maintenance or an open retrofit was deducted. Sometimes at a number larger than the actual cost.
The appraiser did not know the market. LA multifamily submarkets vary enormously block to block. An appraiser without local depth can miss why your building trades differently from one a mile away.
Ask for the report and read the comparables. The specific sales used, the adjustments made, and the weighting between the income and sales approaches are all visible and all challengeable.
Provide better comparables. If closed sales exist that the appraiser did not use — particularly recent, nearby, similar-vintage rent-stabilized sales — those can be submitted through the lender for reconsideration. This works more often than sellers expect, and it works because it is factual rather than argumentative.
Correct factual errors. Wrong unit count, wrong square footage, missed capital improvements, mischaracterized rent roll. Factual corrections carry more weight than disagreement about judgment.
Have the buyer request a second opinion or a different lender. A different lender orders a different appraisal. This costs time, and in a market where speed matters that trade-off has to be weighed.
Reconsider the price honestly. Sometimes the appraisal is telling you something true. If two lenders' appraisals land in the same place, the market is speaking.
Give the appraiser a complete package. Rent roll, trailing operating statements, capital improvement history with invoices, permit records, and your own list of relevant comparable sales. Appraisers work from what they are given; a thin package produces a conservative result.
Be present for the inspection, or have your broker be. Buildings show better when someone can point out what has been done and why the property is positioned the way it is.
Know your comparables before you price. If you cannot support your asking price with closed sales, an appraiser will not be able to either.
Prefer buyers whose equity has room. A buyer at low leverage is far less exposed to an appraisal gap than one stretched to their maximum loan.
Treat the appraisal as a process you can influence rather than a verdict you wait for. Assemble a genuine package for the appraiser, know and supply your comparable sales, and be present. If the number still comes in low, get the report, look at the comps used, and respond with facts. And if two independent appraisals agree, take the information seriously — an appraisal gap that keeps reappearing is usually a pricing signal rather than an appraisal problem.
Can I see the buyer's appraisal?
The report belongs to the lender who ordered it and the borrower who paid for it, so you see it only if the buyer shares it. Cooperative buyers usually do, because they want the seller to engage with the number rather than dispute it blindly.
Does a cash buyer eliminate this risk?
Largely, yes. Without a lender there is no appraisal requirement, which is one of the reasons cash offers are often accepted at a lower price than financed offers — the seller is buying certainty.
Does an appraisal gap affect a 1031 exchange timeline?
It can. A renegotiation consumes days, and 1031 deadlines do not extend for it. If you are selling into an exchange, appraisal risk is one more reason to prefer a buyer with equity headroom and a short financing timeline.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
Thinking about selling? Get a no-obligation evaluation on your building.
Request Free Evaluation →