March 11th, 2016 12:07 PM by NE TEXAS REALTY GROUP
4 Ways to
Deal If Your Appraisal Comes in Low
The home-buying process is a high-stakes thrill ride full of
exhilarating ups and scary downs, but unquestionably one of the most
deflating moments is when the appraisal comes in significantly lower than the accepted
offer. This is, to use technical real estate lingo, “a bummer.”
Either you feel as though you got the raw end of a
deal by paying more than the property’s worth or, if
you don’t have extra cash to hand over, the deal can crumble into
dust. (Your lender’s not going to fork over money for a higher loan amount if
the appraisal came in lower than expected, so you’ll have to make up that
“In a rising market, low valuations are pretty common
because appraisals are based upon sales that closed when prices were lower,”
says Diane Saatchi, a senior broker with Saunders & Associates in Bridgehampton, NY. “The reverse is so in a
In other words: Appraisals can’t keep up with how quickly
homes are selling in a hot market, so you’re bound to see lower-than-expected
values placed on homes.
So, what do you do if this happens to you? You have four
Sometimes called a “rebuttal of value,” the appraisal appeal
takes some work. In fact, it’s a total team effort.
The homeowner, loan officer, and often the real estate
agent work together to find better comparable market data to justify a higher
That means everyone puts on their best Sherlock Holmes garb
and gets to work looking for anything that helps the claim for higher valuation.
Perhaps the appraiser overlooked some comps (homes similar in style, location,
and square footage sold within the past few years).
It’s not uncommon to discover, for instance, that the
appraiser used a comparable sale that looks like it’s in great condition, when
in fact the home was trashed when purchased and has already been rehabilitated.
The loan officer writes an appeal using the new
comparables and then sends it to the appraiser. There might be some
negotiating back and forth until all parties come to a compromise with a new
Spoiler: It’s a hard battle to fight.
2. Order a
Most often, if the appraised value is not as high as the
agreed (contract) price, the seller’s agent will ask to see the comps and get a
second or third appraisal.
But it will likely cost you–you’re not only paying for
the first appraisal (in your closing costs), but you’ll pony up for any
additional appraisals as well. They can range between a few hundred dollars and
$1,000 depending on the area. Occasionally, real estate agents or sellers will
foot the bill if they really want to keep the sale.
with the seller
If you’re lucky, you and the seller will both budge a
You might go back to the sellers and ask them to reduce the
price or split the difference. The seller is under no obligation to do so, but
they may prefer to do this rather than take a chance of losing you as a buyer,
and starting over again. It is likely that another buyer will have the same
issue, so the seller might be better off renegotiating with you unless they
have other offers.
Sellers might be more willing to cooperate, especially if
the Federal Housing Administration is involved. Lenders often require the use
of their own FHA-approved appraiser, and these appraisals are “locked in” for
The seller could be forced to take a poor appraisal or wait
it out for a buyer with a different loan.
While the seller will usually be upset about the low
appraisal value, most reasonable sellers eventually come to terms with the fact
that any other appraisal values by potential future buyers will most likely
come in at about the same value.
4. Walk away
No one wants to let a property slip through their fingers,
especially if it feels like their dream home. But beware of ignoring a low
appraisal—you could end up losing thousands whenever you decide to sell.
If you have an appraisal contingency in your contract, you can walk away, get
your deposit back, and hope for better luck the next time around.