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What To Do When You Receive A Low Appraisal

7-Minute Read
Published on May 13, 2021
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You’ve staged your home, kept it free of clutter and worked with a real estate agent to set the perfect asking price. Now the hard work has paid off: A potential buyer has made an offer, you’ve accepted, and your house is under contract. Nothing can stop your home sale now, right?

Not necessarily. There’s still a potential hurdle in the way – the appraisal. After you and a buyer sign a contract, the mortgage lender working with your buyers will order an appraisal of your property. During this, an appraiser will determine how much your home is worth in today’s market.

What happens if you get a low appraisal that’s below the agreed-upon sales price? Your home sale might collapse. That’s because the buyer’s lender won’t loan them more than what an appraiser says your home is worth. It’s why home sellers rightly fear the prospect of a low appraisal.

There are steps that you can take to salvage your home sale even if your home’s appraisal comes in low. The problem? They’re not all that pleasant.

How Does A Low Appraisal Happen?

Home appraisals are an unavoidable part of the home selling process, and are valuable to the buyer and lender. For the lender, an appraisal is conducted to assess the actual value of the home, and to ensure that this is equal to the loan amount that the borrower is asking for. A buyer uses the appraisal to avoid paying too much for the home.

Home appraisals can also be beneficial for a homeowner as well. You may need to have your property appraised when refinancing your mortgage or applying for a second mortgage. The appraisal is important during these processes for qualification and pricing purposes.

During the appraisal process, a lower-than-expected valuation might happen. This can be a real shock to sellers who’d been hoping for a specific price on their home. Some of the most common reasons for a lower-than-expected appraisal are:

  • Declining market values
  • Rising market values
  • Artificially Inflated prices
  • Overpricing by the seller
  • The property is not well-maintained
  • The underwriter valuated the property incorrectly 
  • Foreclosures or short sales in the neighborhood

The market and the appraiser’s understanding of local influences can have the largest impact on the property valuation. Understand that often the valuation is out of your hands due to fluctuating market trends and outside influences.

You’ll want to work with your appraiser and real estate agent to list your house to balance between the most accurate price and the profit you desire.

How Often Do Home Appraisals Come In Low?

Low home appraisals are not a common occurrence, but they do happen on occasion. According to Fannie Mae, appraisals come in below contract only about 8% of the time.

Most appraisals will come in at the right asking price, but when they do come in low, they are often renegotiated. In the end, the appraised value usually ends up working out fairly for both parties. Thoroughly review your valuation with your real estate agent to check that no errors have been made.  

Why A Low Appraisal Is Not Ideal

Say a buyer offers to purchase your home for $200,000 and you accept that offer. But what if the appraiser values your home at $180,000?

The buyer’s lender won’t approve their borrowers for a loan for more than that $180,000. This leaves a gap of $20,000. A low appraisal could cause the buyer to back out or lose funding.

The buyer may try to negotiate a lower price with you. If a compromise cannot be reached or the buyer cannot pay the difference, the sale can fall through.

If you’re trying to buy a home, this could be worrisome. It could cause a delay in your purchasing and significantly decrease your buying power. If you’ve already had a bid accepted on your new home, it can cause a stressful degree of limbo.

How To Dispute A Low Home Appraisal

You can dispute the appraisal by submitting a Reconsideration of Value (ROV). Winning a dispute isn’t easy, though. You will need hard evidence to back up your claims. Usually this evidence will come in the form of other nearby home sales.

Brandon Hays, a real estate broker with Stellar Realty Northwest in Portland, Oregon, says that the key to fighting an appraisal is to work with your agent to find real estate comps that prove your case. Appraisers study recent sales of nearby homes that are similar to yours – what are known as comparables – when determining the value of your residence.

If you can find recent comparable home sales that fetched a higher price, you might be able to successfully contest your appraisal, Hays notes.

The buyer’s loan officer can help facilitate this process, which usually involves providing new comp sales that were not used by the appraiser but that are believed to be superior to the comps the appraiser relied on. If the appraiser agrees that these comps should be included, they will revise the report and potentially revise the valuation.

But don’t expect a new appraisal if you can’t find these comparables.

“If you can prove on paper that the home’s value is what you say it is, then you can submit your request to the appraisal company,” Hays says. “I’ve experienced some appraisals using comps that are not actually comparable at all. This is an aggressive move, but it has worked on multiple occasions.”

How To Overcome A Low Appraisal

But what if you can’t find comparable home sales to use in your argument? Susanna Haynie, broker/owner of Colorado Real Estate Group in Colorado Springs, Colorado, says that buyers and sellers can work together to overcome a low appraisal. But this will require financial sacrifices.

Reduce Your Asking Price

As a seller, you can reduce your asking price to the appraised value. You might have accepted an offer of $200,000 for your home. But if the appraisal says your home is worth $180,000, you can agree to accept that amount from your buyers instead. This will reduce your profit, but it will keep your home sale on track.

“If the seller reduces the price to the appraisal, we are golden and are moving forward,” Haynie says.

Compromise On The Appraised Value

Sometimes you might be able to convince the buyers to bring some money to the table, saving your real estate deal. For instance, if the buyer’s lender will only loan them $180,000, but you and the buyer agreed on a sales price of $200,000, you might try to lower the sales price to $190,000 while the buyer agrees to pay $10,000. This will cover the $20,000 shortfall.

This type of compromise requires buyers who are willing and able to pay out of pocket. Finding such buyers is rare.

“There are times, then, when a low appraisal really does doom a home sale,” Haynie says. “If the seller is not budging in price, the buyer can walk. If this happens, it is very, very unfortunate.”

Get A Second Appraisal

While you are free to get a second opinion on the appraisal, it may not change. All valuations are supposed to be reviewed for accuracy and fairness by the rules set into place by the Home Valuation Code of Conduct.

If you feel strongly that a second appraisal is worth the investment, you’ll need to ask the buyer or lender for the second appraisal. In this case, you may have to split or cover the cost of another appraisal. While a client or seller can request a new report, that does not mean that a new report will be ordered or issued upon that request. For an extremely low and erroneous appraisal, your lender may offer to cover the cost.

Hold Off On The Sale

It’s important to note that a buyer’s lender may not be willing to accept a new appraisal value even if it is higher. They’re looking for an accurate loan-to-value ratio to ensure that their risk is not too high.

Because of this, a new appraisal may not be worth accepting, and you may want to ask yourself if it would be worth selling later. Waiting to sell your home could mean a higher appraised value down the road and a higher market value. 

Can A Seller Back Out If The Appraisal Is Too Low?

While an appraisal contingency allows a buyer to walk away from a sale if they’re not happy with the appraisal, sellers who are put into this position may wonder if they too are able to back out. While a seller has few options, there are some ways to move forward.

As disappointing as it may be, sometimes the best option is to allow the deal to fall through and relist the property on the market. There’s a chance that walking away from the current deal could benefit you in receiving a higher (or cash) offer later. The benefit of this is that an appraisal can be waived with a cash offer.

During this process, your real estate agent will be especially helpful in determining if walking away is best for you or not. They will be the most knowledgeable source for understanding what the current market trends are, and what your best chance of selling for a better price after putting the property back on the market will be.

Decreasing the Odds of a Low Appraisal

You might think it’d be easier to prevent a low appraisal than fight one or lower your home’s selling price. Problem is, you have little power to influence an appraisal.

That’s because much of what determines an appraised value can’t be changed: your home’s age, size, location and surrounding neighborhood.

If you update your kitchen or add a primary bedroom, you might increase your chances of earning a higher appraised value. But these are big, expensive fixes that will help boost your home’s value long before an appraisal is conducted.

What can you do after accepting an offer to boost your odds of a higher appraisal? The best way to do this is through the efforts of your real estate agent.

Melissa Terzis, associate broker with RLAH Real Estate in Washington, D.C., says that she always meets appraisers at her clients’ homes. She will share comparables with appraisers and information about the home that the appraiser might not have.

For instance, a condo association board might have recently approved a renovation or a new amenity such as a community pool or a garage addition that might improve the value of the property. Terzis will make sure appraisers know of these forthcoming improvements.

“I will work diligently to defend the price,” she says.

The Bottom Line: What Low Appraisals Mean For Sellers On Low Appraisals For Sellers

As a homeowner looking to sell, receiving a low appraisal is never something that you want to experience during the process. A low appraisal can impact not only the sale of your current home, but the purchase of your new home as well.

We recommend you work with a trusted real estate professional so you receive an accurate appraisal, and that you’re pricing your house against today’s market trends. Contact us if you have any further questions on how the appraisal process works, and how to overcome a low appraisal.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.