A low home appraisal is a real problem for both the buyer and the seller. For the seller, it means they’ve outpriced the market. And, for the buyer it means they’ve simply offered too much. That is, if the low home appraisal amount is actually correct. Although such news is a disappointment to you as a buyer (because the bank won’t magically increase your loan amount), it’s not necessarily the end. The good news is, there are some ways to deal with a low home appraisal.
Why Home Appraisals Come in Low
Okay, if an appraisal comes back at a lesser amount than the agreed selling price, you can still just pay the difference. Now, that’s just not a realistic solution for the vast majority of home buyers. But, it is an option. Of course, you probably want to know how this could happen in the first place. Well, low house appraisals happen for a few different reasons.
“There’s no way around it: any home purchase financed by a mortgage involves an appraisal. This is how the bank ensures that the size of the loan isn’t greater than the value of the collateral (the house) needed for the loan. So what happens when the appraisal comes in below the price you and the buyer have agreed upon? Until your agent calls to tell you the appraisal came in below the agreed-upon sales price. Whomp, whomp, whomp.” —Forbes.com
Perhaps the most common is the appraiser used bad comparables for the valuation. It could also be due to the fact the market is moving too quickly. In other words, in a seller’s market, home prices are rapidly rising. Another reason is home improvements just don’t bring as much value to the house. Or, the house is the best one on the block. But, it’s value is restricted because it’s above its peers’ value.
What to Do about a Low Home Appraisal
Now, the above reasons aren’t a complete, exhaustive list. But, if you do have a low home appraisal, you’ll likely want to remedy the situation. Here are four options for dealing with a low home appraisal you can try:
- Appeal it. You can file an appeal, known as a “rebuttal of value.” For this to work, you’ll have to team up with the seller (who probably also disagrees with the appraisal amount.) Together, you’ll identify comparable properties to determine the house’s actual market value.
- Order another appraisal. If filing a rebuttal of value isn’t a feasible option for whatever reason, you can simply order another appraisal. Yes, you’ll have to pay for said second appraisal. But, if you are sure the first valuation is wrong and really want the property, it’s a worthwhile move.
- Try to negotiate with the seller. Okay, so there are definitely instances when sellers price their houses above true market value in an attempt to gain the highest ROI. But, the appraisal might challenge that strategy enough to get the seller to come down in price. You might even approach the seller about striking a deal to split the difference.
- Walk away from the deal for now. Since the low appraisal doesn’t support the agreed selling price, you’re legally free to walk away, with your earnest money deposit. Doing so might cause the seller to take action and lower the price. If you do walk away, keep your eye on the activity. The seller just might lower the price, realizing it was too high.
If you are considering buying or selling a home in Orlando, contact us for the latest market information. We’ll also provide you with the right advice about the local real estate market so you make the best decisions.