If you’re buying a home, you know it can be quite a process. When you want to purchase a house, it takes more than a down payment, a decent credit score and patience. It helps to become a near expert in your market and develop strong negotiating skills.

Think this sounds a bit intense? Yes, maybe a little. But you don’t have to do it on your own. Finding the right lender and a good real estate agent can make the process a lot easier.

You could find a house, make the best offer, execute a purchase agreement and have a perfect home inspection – and still, your house must pass an appraisal and receive a value. Let’s go over how the appraisal process works, along with a few of its finer points, and then discuss what to do in the event of a low appraisal.

How Does an Appraisal Work?

An appraisal has two purposes. The first basic fact established in any appraisal is whether the house is safe to live in. Secondly, it’s the appraiser’s duty to determine a value for the property by comparing it to similar properties in the area.

Making Sure the House Can Be Occupied

The appraiser is required to make sure the house is ready for whoever’s moving in to be able to use and enjoy the property fully. They’re looking for these red flags, among others:

  • Anything that affects the health and safety of occupants: There are some fundamentals, like making sure the water and electricity are on and there is no exposure to hazardous materials. For FHA loans, homes built before January 1, 1979, must fix any chipped or peeling paint due to the potential for lead exposure.
  • Structural defects: These could include exposed floorboards or studs as well as holes in the roof and missing handrails on porches or decks. In short, any construction has to be finished.
  • Anything limiting use and enjoyment of the property: The appraiser has a wide latitude to order any inspections they feel are necessary to ascertain if there may be issues for the person moving into the property. They may call for a roof inspection if there are signs that the roof is nearing the end of its life. Other examples include pest and water quality inspections.

If any conditions from the mortgage investor backing the loan are not met during the appraisal or subsequent inspections, they’ll have to be corrected before you can move in.

Understanding Appraisal Values

Safety is one thing, but when most people think of appraisals, they rightly associate them with placing a monetary value on a home. This is done to protect both the buyer and the lender or other investor in the mortgage.

Ideally, a buyer shouldn’t pay more than the fair market value of the home. From the perspective of the lender or mortgage investor, they can’t lend you anymore than the property is worth. If you were unable to continue making your payments and defaulted on the loan, the lender would then have to try to recover as much as they can by taking possession and selling the property. Consequently, market value is very important for the lender.

An appraiser most commonly assigns a value to your property by doing a walk-through, which involves taking pictures and making notes on the condition and distinctive features of the home. They then evaluate the property against recent sales of comparable properties in the area. For example, three-bedroom ranches are compared with other three-bedroom ranches, usually within no more than a mile or two of the property being assessed. This distance may be extended in rural areas where there are fewer houses. Based on these factors, the appraiser comes up with a value.

There are other approaches to assigning value that may be offered in certain cases, depending on the mortgage investor, the property and the circumstances of the transaction. For example, Fannie Mae and Freddie Mac may offer appraisal waivers if they feel confident enough in the data they keep on your area and the particulars of your loan. In instances where no walk-through is required, your closing costs will be lower and you may be able to close on your mortgage faster.

Common Appraisal Issues

Why might a home appraisal come back lower than the purchase price? What are your options if that happens? Let’s go over these questions next.

Why Does a Home Appraisal Come Back Lower Than Expected?

The easiest answer to this question is that the home you’re purchasing isn’t actually worth what the sellers are asking – but let’s dig a little deeper into the why.

As we’ve discussed, in an appraisal, your future home is compared with recent sales of similar area properties. As a result, sometimes there isn’t really a first-mover advantage in real estate. In other words, if you put in a brand-new pool, and no other three-bedroom houses around have brand-new pools, you won’t necessarily end up with as high a value because there’s nothing to compare to.

Certain features and improvements tend to add more value than others. That’s not to say you shouldn’t make a renovation, particularly if it adds to your enjoyment of the home. Some just add more monetary value.

There’s also the simple fact that we don’t sell our houses every day, so we don’t know what they’re worth. Sometimes a seller may be taking a shot in the dark. This is where it can help to have an experienced real estate agent on your side, regardless of whether you’re the buyer or the seller.

How Do I Deal with a Low Appraisal?

If your appraisal comes back low, here are a few options for what you can do:

  1. Negotiate with the sellers: Whether you choose to appeal the appraisal or not, you can always try to negotiate with the sellers. If the gap between the offer price and the appraised value isn’t too large, you may be able to meet somewhere in the middle and secure your dream home.
  2. Move on: Sometimes deals just fall through. Even if you really love the home, you shouldn’t have to take more money out of your pocket to buy a property that’s overpriced. So be prepared to walk away from the deal and continue your search. There will always be another home …
  3. Keep your eye on the house: Often, if a deal falls through because of appraisal issues, the homeowners have a hard time getting higher offers from other buyers. They may come back to you to negotiate again. Keep looking, but also keep an eye on the home just in case the sellers don’t receive any more offers.

How Long Does a Home Appraisal Last?

An appraiser may only physically be at the house for a couple of hours, but that’s an important couple of hours for the home-buying transaction because they establish the property’s value.

Additionally, with an FHA loan, once an appraisal is done, it sticks with the property for the equivalent of four months, during which time the original appraisal will be used even if a new buyer comes along with an FHA loan. With all other loan types, a new appraisal is ordered for each potential buyer if the first transaction falls through.

We hope we’ve helped answer some of your appraisal questions. If you’d like to move forward with a mortgage approval, you can get started online or give us a call at (800) 785-4788 to speak with one of our Home Loan Experts. If you still have questions, you can leave them for us in the comments below.

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This Post Has 32 Comments

  1. My son and his girlfriend are buying their first house with an FHA mortgage too. On his wishlist was lower taxes and hers was a nice kitchen. They found a small house that fit their needs and budget and made an offer. I’m almost certain that they are overpaying by $20-$30k. I know they’ll be disappointed if the appraisal comes back low and the sellers won’t budge. But I don’t want them to overpay. Even though they are adults, this is their first home and I would hate for unscrupulous sellers and realtors to take advantage of these kids. I’m truly relieved that the appraisal should prevent that from happening.

    I would also like to say that reo sales do effect a seller’s appraisal, how could they Not? When there are many 2,000 square foot foreclosures selling for $300k, of course your 2,000 square foot home isn’t going to appraise at $500k. That’s the reality of having a reo surplus and a buyers market.

    1. As to your second point, I think it depends on your local market very individually. If there are lots of REO sales in your area, I could see it being an issue, but in many cases the odds of finding multiple comparables that are both foreclosures probably aren’t that high.

  2. Selling our house and buyers are doing FHA. We went with an FHA loan too when we bought that house only 2.5 years ago. It appraised for 14k more in mid 2015 than it is now. The new 2018 appraisal gave the house a better Quality rating and the same condition rating as 2.5 years ago, yet the appraisal is 14k less, 21k below what we listed it for and 17k below the agreed upon purchase price (we did install a new fence that completely encloses the large back yard which we stupidly thought would increase the value, joke’s on us). Other than that, the house is basically the same as it was a couple of years ago, the market trends aren’t THAT much different and the house next door to ours sold 3 months ago (comparable size and quality) for 10k more than our new appraisal value. What’s up with that, a drunk appraiser?

    1. Hi Stacy:

      I can obviously only tell you in general without having seen the property or been in your area, you could try to renegotiate. As a seller, you don’t have the ability to appeal because appraisals are meant to protect the buyer and the mortgage investor from paying more than what the property is worth. You could hold firm to your sale price. In this case, the buyers could bring the difference in cash to the closing table. Otherwise, they could appeal the appraisal for a higher value. This is done through the lender. They’ll evaluate the original appraisal and if necessary, send another appraiser out. Or you could put it back on the market. I’m sorry. Those are really your options.

      Thanks,
      Kevin

  3. I put an offer in on a house $5k less than asking price. Sellers accepted. During the appraisal it was determined the house is worth less due to the current owners making a 3rd bedroom out of a loft without a permit. Without the permit the square footage is decreased. The sellers were suppose to get the permit but I was recently informed they were not persuing the permit. My bank won’t tell me the appraised value for renegotiation unless an exception is granted by the underwriter. Do I persist in trying to get them to get the permit or if the exception is granted buy the house for less money and then try to get the permit myself?

    1. Hey Christina:

      That comes down to a couple of factors. One of them is how much work you’re willing to put in to get the permit after the fact. If the seller has other buyers lined up, if you take too long, they may decide to sell to someone else. I don’t know how long you been going about this process or how hot the market is for this particular house.

      Thanks,
      Kevin Graham

  4. I have a contract on purchasing a home, my wife and I love it and we agreed with the seller a price.
    We are good with it and we have been loan approved . We have our down payment ready and all that is missing the appraisal. They are having a rough time and they are a week late. We had to extend the COE date. Q: if the appraisal comes in lower buy 15K and I want to pay what I proposed but seller has to lower the price to sell, can a loan down payment be be lowered as long as it’s 21% down so I can pay he seller the remains of our first agreement? This way he gets the amount we agreed on and I get the property we love. The seller has a cash buyer just waiting for us to drop out, I don’t want to drop our, I want the property.
    Thank you

    1. Hi Ralph:

      You can bring the difference between the appraisal and the agreed-upon purchase price to the closing table. However, this doesn’t affect your LTV for the loan. So you down payment would be based upon whatever the loan amount was and then anything extra you bring is just between you and the seller. Under this scenario, you can still do it, but you would have to pay mortgage insurance until you had 20% equity based on the loan amount. Hope this helps!

      Thanks,
      Kevin Graham

  5. Buyer and I agreed on $308,000 plus $6,000 toward closing costs. That total, $314,000, was a few grand less than my listing price. Three agents assured me that there would not be a problem, that they had not seen ONE appraisal come in lower than the listing price in a few years.

    It came in at $297K. A pending comp (not closed yet) I know met its listing price of $310K, and the home doesn’t have the features mine does. So what…gives?!

    And oh yes, the buyer’s loan product is VA-related. My questions are: how can I formally appeal the appraisal as the seller? How long will this appraisal show up/stick to the property? If it does stick, does that only apply to buyers with other FHA or VA loans? Would it help to get my own appraisal?

    1. Hi Oliver:

      I can answer a couple things for you and then I’m going to pass this to someone who knows more to talk about options you might have for an appeal. Look for an email.

      Comparable properties are usually based on a minimum of 2 to 3 other properties in the area. The pending comp may not even count as it hasn’t sold. That said, every situation is different and I don’t blame you for looking into all your options for appeal. In terms of VA appraisals, they’re performed by people that are qualified VA appraisers and only apply to VA properties. The appraisal sticks for six months. In terms of appraisal, FHA has some of its own requirements and those appraisals last 120 days.

      I’m going to have someone reach out about appeals.

      Thanks,
      Kevin Graham

  6. Our home came at 14k less with appraisal. Is it smart to get a second opinion? It is a bilevel and the comps were mostly ranches that did not exclude the lower level. Thanks.

    1. Hi Annie:

      You can certainly try to appeal the appraisal. Make the point about the bilevel and see what they say. It may or may not make a difference, but you don’t know unless you ask. I wish you good luck.

      Thanks,
      Kevin Graham

  7. @ author & daryl: “We decided not to offer anything more than the appraised value…” Wait. You ALREADY DID offer more than the appraised value. In fact, your OFFER was the reason the seller chose to allow YOU to tie up their property for 30+ days to purchase it instead of someone else. What you are really doing is reneging on the price you offered to pay because of the opinion of someone else, an appraiser. If you liked the home so much to be willing to pay that price when you submitted your offer, why are you not willing to pay it now? Unless you really can’t make up the difference because of lack of funds, I think that’s a bit dishonest in my opinion. And by the way, daryl, as a Realtor for over 10 years, new paint and flooring DOES in fact make a home worth more. That’s why buyers fall in love with those homes and they get flooded with higher “offers”. The fact is, most people aren’t and don’t want to be handymen to work on a project house. That’s why those things add value, meaning the price people are willing to pay rather than the square-footage comparables from an appraiser just trying to get another job done as fast as they can.

    1. How is it dishonest? Should she start out 30k underwater on a house that she THOUGHT was worth that much but wasn’t? And how would finances NOT be an issue if she’s using an FHA loan?

    2. I would very much like to expound upon this commentary, however unsolicited my rebuttal may be….

      In brief recapitulation, you are essentially proclaiming third party, unbiased appraisals are superfluous and that any purchaser who, without the skills, knowledge or tools readily available to professional appraisers has not only erred, but it, in fact, dishonest?

      My summation is that indubitably, it is YOU, sir, who is most likely the ‘dishonest’ individual among all others included in this running commentary.
      It is apparent that you would not suffer any internal dilemma or future remorse in peddling a worthless item at substantial cost to a purchaser…..disregardful of its value, or appraisal.

      I find your statements horrifyingly absurd, shameful………this type of character flaw should immediately exempt you, and those like you, from any business in which you are entrusted to what is, for most people, the single most important purchase of a lifetime.

      1. Many people have confusion about the appraisal process. However, what people need to know is that the lender cannot loan more than the property is worth because the property is collateral for the loan. You wouldn’t pay $10 for a stick of gum that was only worth $1. Lending works the same way.

    3. We are going through this process right now. The buyer made an offer full price because they needed help with closing (which we were Helping with). FHA Loan. The appraiser did not even look at the houses in our area that sold for the same price that we listed ours for, just the ones that foreclosed in our neighborhood. Appraisal came in 35,000 low. Now we have wasted 30 days with this buyer and my realtor tells us this appraisal will stay with our house for 60 days which looks like a lie because everything I have read says 120 days. The buyers appealed it and we are waiting. It is our house can we appeal it? Now we are going to lose 120 days and probably take it off the market. Our new house is being built so now we will be paying 2 mortgages. I will never accept another offer that has a FHA Loan. Just because these power hungry appraisers say your house is not worth it doesn’t make it true. They did not look at any comps of the same house that sold in our neighborhood for 20,000 more! Very Frustrated!

      1. Hi Terri:

        Unfortunately, the appraisal can only be appealed by the buyer because protection for the buyer is one of the reasons for any appraisal. The good news is it sounds like that’s already happening.

        If the appraiser didn’t take into account properties that are truly comparable to yours and your appraisal came in low, then it’s a bad appraisal. However, appraisers are independent contractors and get paid the same amount no matter the value of the house. It’s a frustrating mistake, I know, but I don’t think there’s a motivation to lowball. That said, I wish you good luck and hope for the best!

        Thanks,
        Kevin Graham

    4. I have to disagree with you here. I am a buyer right now. Listing went up 149,900. BEAUTIFUL renovations (kitchen especially, all granite) inside a 66 year old home. My thought? the sellers must have done these. They bought the home in 2015 for 118,500. So 149,900 now? Must be the kitchen, right? So I offered them what they are asking. Only to find on inspection, they will not pay for most other things that need repairs. Gutters being one that are at the end of their life by inspection. They said no, they replaced them “three years ago”. Fireplace not usable, and questioned this also, among electrical issues. My realtor said to call the contractor on our requests who answered for the sellers. The realtor said there is no way gutters could have been replaced by these people as they moved in only 2 years ago and selling now. She encouraged me to call the contractor they hired, and I did. Regarding the fireplace, it has been abandoned. For years. Regarding the whole house renovations that make it so beautiful? They were not done by the sellers, but by previous owners. They moved into the renovated house, same as I would be. Yet they paid 118,500 for this home. And asking me to pay 149,900. What they are doing is allowing the general public to believe renovations were made by them above and beyond what they paid for this house, being the renovations are a few years old. In actuality, they moved into the same and will fix next to nothing in disrepair. And I am now finding out I would be paying 30,000 more for a remodeled home they had no part in. So please take into consideration a seller’s dishonesty in this scenario. They obviously wanted to piggy back on a previous owner’s recent renovations in the last 3 years, claim them as their own, and jack up their price.

  8. Was googling what to do when the appraisal comes 30K below the offer price and the search led me to your website…I feel so much better after reading your post!

  9. @BJ. I am currently awaiting appraisal on a home I am buying. I qualify for the full amount. I also have 50% More to put down in addition to the full loan. If the appraisal comes back to low, it would be retarded for me to pay 10 grand above the appraisal. If the seller is anything like you, and doesn’t negotiate, I will walk away.

    Why would I spend 10 grand when I could buy a house for much cheaper and spend that money to make it my own. Many times, things that people think will make their house more appealing, are just surface coverups. Putting in hard wood and painting aren’t gonna add that much value. Adding extra square footage, restructuring, and additions are about the only things that will add tens of thousands of dollars to a home.

    For my situation, the seller has his home 20 grand above the price of comps in the area. They claim the repainted original house cabinets, refinished hard wood floors that creak, and a a large sheet rocked basement with tiled floor as the reason for the 20000 dollar price increase. They added an extra 700 sq feet to the house, and cooled it by cutting a vent into the existing duct work. Lol. I know on inspection, the HVAC unit won’t be big enough to cool the home. In addition, their isn’t any windows down there. This can not be included in the price as extra footage. Thus I think they will be in for a shock. Comparable also have hard wood floors under carpet, so that point is mute.

    Painting doesn’t add any value, anyone can paint.

  10. I will no longer deal with buyers who have to get full loan approval from the bank. They are a waste of time. I am like the other person who commented here who has so many upgrades and high quality construction…etc. I am not selling my home based on an appraisal. If the buyer does not see value in all of the extras and nicer quality things, then they need to be looking for basic cookie cutter homes.

    Why waste a seller’s time making and accepting an offer when you have no cash to put on the table to make up the difference when you know the appraisal is probably going to come in low. Don’t ask me to lower an agreed upon price because you can’t qualify for your loan.

    1. I think it’s you that needs to face the facts and get your head out of the clouds. Thinking your house is worth more doesn’t make it so. It’s only worth what the buyer is able and willing to pay. Otherwise it’s just an arbitrary number you came up with.

  11. Seller and I agreed on a sales price, the appraised value came 11k lower I suggested the seller to meet in the middle, ill come out with an extra $5500 and he will lower the sales price the same amount if he refuses is there anything else I can do?

    1. Hi Armando, thanks for reaching out to us. I’ve shared your question with one of our home loan experts who will contact you to learn more about your situation. Thanks and have a great day!

  12. Other than the misguided blather about AVM’s, good article.

    AVM’s are unbiased calculations that can be extremely helpful in assessing value. First, contrary to what is insinuated here, no lender ever made a sole decision on a purchase money transaction using only an AVM. Since 2010, FFIEC guidelines prohibit it. That said, 100 appraisers will come up with 100 opinions of value, and 100 realtors will create 100 different comparative market analyses. Appraisals will often include out of area comps, values reflecting a general understanding that a history of conservative valuations will likely find them on a “less preferred list”, etc. An AVM, if it incorporates the right kind of support data and functionality that allows it to consider both MLS data and public record data, is both current and unbiased and when used with an Inspection according to FFIEC guidelines a very great TOOL that should not scare a consumer if they encounter it. Of course, a bad AVM, like a bad appraiser, can also be problematic.

  13. I’m on the other side of this problem. We listed our house in mid june for $435 k (CA) within 8 days we had 2 full price offers. After a couple of weeks and a glowing inspection, the appraisal happens. Guess what? It comes in 30k below the offers/asking price!! We see that one of the comps has bad info (not 3200 sq feet but really 3000 sq feet) so that was a $6500 mistake that hurt our appraisal. The county had bad info on this house as well. Anyway, our house is maintained to the max by my hubby..we have TONS of upgrades and amazing extras where the appraisal has no category for such as a 130 foot paved by 25 feet wide and gated RV access – enough room for a Winnebago (huge) plus a Giant ocean worthy boat…zero credit for this on the appraisal form. Plus we had nothing but short sales and REOs that we were compared with..not fair. Other people neglect their home and we spend all weekend maintaining but in the end those nasty ones are considered “comparable” properties? No way, Jose!!! We have all these extras: fire pit, gazebo, newly painted home, hardwood floors, storage shed, wetbar and custom bookcase and closet in 600 sq foot gameroom above our 3 car garage.. We have workbench in 3rd car shop area, extra driveway in front of home that fronts the RV gated access. We have top of line whole house fan plus 3 zoned a/c heating system plus fountain in backyard plus low maintenance patio cover, spa (hot tub) plus gunite built in pool that’s 36×18 with diving board and 9.5′ deep. We have prof landscaped yard (beautiful) and backs partially to golfcourse (we hear FORE a lot and carts going over wooden bridge) We have quiet peaceful backyard. Sorry for the rant but we have dropped our price $7k solely because of the appraisal hat we feel is NOT comparable. Frustrating!!! We may lose sale but we have backup offer to start clock ticking again (new appraisal etc) both were conventional loans… Bummer. Meanwhile we have a purchase contract on another house. We might be able to continue with other assets but not real happy about 2 mortgage pmts till we sell this one..UGHHH my thoughts are that appraisal is bogus. It merely tries to equalize distressed and non distressed properties so this blogger is not Paying for Overpriced property. She’s trying to get well kept property at distressed pricing. Well maybe her lender is preventing he from buying it at its true value. In econ i learned that market price is the point at which a willing buyer and willing seller agree to buy and sell a property. Not so anymore with appraisers in the mix. I saw a bill in congress not passed yet which prevents appraisers from using distressed props in appraisals for non distressed props. That’s one bill i hope passes!

    1. Hi Nelson, thanks for the feedback, maybe we have ourselves a new blog post in the works…thanks for the suggestion!

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