Steps To Disputing A Low Home Appraisal
Written by
Terence Loose
Edited by
Nupur Gambhir
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What Happens If the Appraisal Is Lower Than the Offer?
A low home appraisal can throw a wrench into a real estate transaction, leaving buyers and sellers scrambling for solutions. When the appraised value comes in below the agreed-upon purchase price, it can impact mortgage approval, negotiation terms, and even the deal’s success.
Understanding Home Appraisals
What Is a Home Appraisal?
A home appraisal is an independent assessment of a property’s value conducted by a licensed professional. Lenders require appraisals to ensure that the home is worth the amount they’re financing. This protects both the bank and the buyer from overpaying for a property.
How Appraisals Determine Home Value
Appraisers evaluate a home’s worth based on several factors, including location, condition, size, and recent comparable sales (comps) in the area. A well-maintained home in a desirable neighborhood with strong sales activity will generally appraise higher than a property in a slower market or one needing significant repairs.
The Impact of a Low Appraisal
Consequences for Buyers
When an appraisal comes in below the offer price, lenders typically won’t approve a mortgage for more than the appraised value. That means buyers have to make up the difference out of pocket, renegotiate the purchase price, or risk losing the deal.
Consequences for Sellers
A low appraisal can force sellers into tough decisions. If the buyer can’t or won’t cover the gap, the seller may have to lower the price, find a new buyer, or risk the sale falling through. If multiple low appraisals occur, it could signal that the home was overpriced from the start.
Common Reasons for Low Appraisals
Market Conditions
In rapidly changing housing markets, appraisals may struggle to keep pace with rising home prices. If comparable sales data is limited, appraisers may rely on outdated or less relevant comps, resulting in a lower valuation.
Property-Specific Issues
The condition of a home also plays a significant role. Homes needing repairs, renovations, or cosmetic updates may not appraise as high as sellers expect. Unique features that don’t align with the neighborhood norm can also be difficult to value accurately.
Options for Buyers Facing a Low Appraisal
Renegotiate the Purchase Price
One of the most common solutions is for buyers to ask the seller to lower the price to match the appraisal. Sellers may be willing to adjust if they’re motivated to close the deal, especially if the appraisal aligns with market trends.
Increase Your Down Payment
If renegotiation isn’t an option, buyers can choose cover the difference between the loan amount and the agreed price by increasing their down payment. This requires extra cash but allows the sale to proceed without changes to the purchase agreement.
Request a Reconsideration of Value
If buyers believe the appraisal is inaccurate, they can challenge it by providing additional comparable sales or pointing out overlooked home improvements. While not always successful, this approach can sometimes lead to a revised valuation.
Walk Away from the Deal
If the contract includes an appraisal contingency, buyers may have the option to back out without penalty. In cases where covering the shortfall isn’t feasible or the appraisal suggests the home is significantly overpriced, walking away may be the best choice.
Options for Sellers When Appraisals Come in Low
Lowering the Sale Price
Adjusting the price to match the appraisal is often the simplest solution, especially if there’s little room for negotiation. While this may not be ideal, it helps keep the transaction on track and avoids restarting the selling process.
Offering Seller Concessions
Sellers can sweeten the deal by offering concessions, such as covering some of the buyer’s closing costs. This can help offset the buyer’s financial burden and make it easier for them to increase their down payment if needed.
Seeking a Second Appraisal
If the first appraisal seems unusually low, sellers may request another evaluation. A new appraiser might consider different comps or aspects of the property, potentially leading to a higher valuation. However, this isn’t guaranteed and may come with additional costs.
Preventing Low Appraisals
Preparing Your Home
Making minor repairs, freshening up paint, and staging your home can improve its perceived value. Even small upgrades, such as updated fixtures or landscaping, can make a difference in how the home is appraised.
Providing Comprehensive Information to Appraisers
Sellers and their agents can provide appraisers with a list of recent improvements, upgrades, and comparable sales that support the home’s value. Having this information ready ensures the appraiser considers all relevant factors.
A low appraisal doesn’t have to derail a home purchase or sale. By understanding the process and exploring options, buyers and sellers can find solutions that keep the transaction moving forward. Consulting with real estate professionals, staying informed about market trends, and preparing for potential challenges can make the experience smoother and more predictable.
Cynthia Meason contributed to the reporting for this article.
