In mortgage terminology, what typically happens if a property fails the appraisal?

In the context of mortgage transactions, if a property fails the appraisal, it often results in the loan amount being reduced or the sale potentially being canceled. This is because lenders base their willingness to fund a loan on the appraised value of the property. If the appraisal comes in lower than the agreed purchase price, the lender is less likely to finance the full amount, as they need to ensure the property is adequate collateral for the loan.

In such situations, the borrower could either renegotiate the purchase price with the seller to match the appraised value, reduce the loan amount to align with the new appraised figure, or, in some cases, decide against moving forward with the purchase entirely if a resolution cannot be reached. This explanation illustrates the critical role of the appraisal in safeguarding both the lender's and the buyer's interests in the property transaction.