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What Happens When My Appraisal Is Low?
No matter how good the housing market is, there’s always the possibility that your home’s appraisal could come in low. It can happen for a wide variety of reasons, and when it does, it’s stressful. Having the appraisal come in lower than the agreed-upon sale price often throws the deal off the tracks — but it doesn’t have to!
We’ve put together a list of tips to help you figure out why your home appraisal came in low, what you can do about it, or better yet, how you can prevent it.
Why Did My Home Appraisal Come In Low?
The first thing you feel when your home’s appraisal comes in low might be confusion or anger — and the first thing you’ll wonder is “why?” Here are the reasons why most home appraisals come in lower than expected:
The sale price is higher because of multiple interested buyers. This can be a great thing if you’re selling your home — you listed your home, and for whatever reason, at least two parties engage in a bidding war. But the price they’re paying likely won’t match the appraisal if you priced your home appropriately from the start.
The house was overpriced by the seller. Another good thing for the seller — they listed their home for a price over market value, and a buyer swooped in and made an offer to the seller’s liking. In this case, the sale price often comes in higher than the appraised value.
It’s a sellers’ market, not a buyers’ market. This type of market usually leads to the two previously-mentioned reasons for low appraisals. When buyers don’t have a ton of options when it comes to buying a home, the demand for homes increases and prices go up.
There aren’t enough comparable homes for an accurate appraisal. Appraisals can be heavily based on the quality and price of homes in your neighborhood or nearby areas. And if there aren’t enough homes nearby to accurately compare your home to, your appraisal could suffer. If there aren’t many other comparable homes in your area, ask your appraiser if they think expanding the radius they’re considering would help get a more accurate appraisal.
The appraisal is inaccurate. This happens much, much less often than any of the other scenarios. Appraisers are licensed and trained professionals and can face serious consequences for appraising a home incorrectly, purposely or not. If you believe your appraisal is inaccurate, do your research on comparable homes, give detailed notes and receipts on any upgrades and contact your lender and/or appraisal company.
What Can I Do About a Low Home Appraisal?
A low appraisal and the thought of a home purchase or sale falling through stinks — but there are some things you can do! After the disappointment has settled, consult with your realtor about these potential solutions:
The buyer can boost their down payment. If the buyer covers the difference in the sale price from the appraised value in their down payment, it’s likely that the lender will let the mortgage process proceed on the same terms. Not all buyers will have enough cash on hand or the willingness to take this step, however, so consult with your realtor before suggesting it.
The seller can lower the price. If the house was on the market for a long time, the seller just might be motivated enough to do what it takes to get it off their hands as soon as possible. They could lower the price to the appraisal value, or work with the buyer and their lender to meet in the middle on the deal.
Ask for a review of the appraisal, or a new appraisal. If you think your appraiser used incorrect or outdated comps or miscalculated your appraisal in another manner, a lender may be willing to appeal the appraisal or work towards getting a second appraisal. Lenders and all realtors should be included in the decision to start this process.
Back out of the deal. If the other side of the deal isn’t willing to negotiate the terms and/or you can’t work out anything with your lender, you may be forced to back out of the deal and start over.
Talk to your realtor. Chances are your realtor has been through this process before — take their advice to heart and you’ll be more likely to end up a happy buyer or seller.
How Can I Prevent Getting a Low Appraisal?
Sometimes, the circumstances around your sale make getting a low appraisal unavoidable. However, there are a few things you can do to try to make sure your home is valued at its maximum potential:
Price your home accurately. If you’re selling your home, pricing it in accordance with other comparable homes in your neighborhood can help you avoid the discrepancy between the appraised value and the sale price. And if a buyer is willing to pay more for your home? That’s usually a good problem to have.
Work with an experienced realtor. An experienced realtor has likely seen lots of different unfortunate home-buying and selling scenarios — they can help you avoid the problems that come with overpricing, uncooperative buyers and sellers or low appraised home values.
Prepare your home for the appraisal. While it likely won’t make tens-of-thousands of dollars in difference, preparing your home for an appraisal can make a big difference.
Once you’ve worked through your home-buying or selling process, make sure your new home is insured to your exact needs by talking to your American Family Insurance agent — they’re always happy to help you get the peace of mind you deserve.