The Buyer Home Appraisal Comes in Low
This is a rather common nuisance that can throw a monkey wrench in the middle of negotiations or derail a deal altogether.
Remember that the appraiser works for the bank to protect the bank’s interests, not yours. But you as the buyer own the home appraisal report since you are the one paying for it.
So, when the appraisal comes up “short”, there are a couple of things you can do. First you will want to alert the seller’s broker, and supply them with a copy of the appraisal report.
What happens when a home appraises for less?
- Secure a copy of the appraisal report.
With the help of your real estate broker, comb through the comparables that the appraiser used. Perhaps there is a better comparable property that he or she may have missed, that would be in better value alignment with your proposed home.
Your real estate broker will have the same up to date market reports available through the MLS or multiple listing service that the appraisers use. So, there is no going to places like Zillow to estimate values that are often way off base.
- Look for possible errors.
Perhaps there can be a condition adjustment to be made, or something for an extra half bath, bonus rooms, etc. that the subject property may have, but the comparable lacks or vice versa to have the values align.
Sometimes it can be that the appraiser hasn’t taken into account new improvements or wasn’t aware of any; they used comparables that are over a year and outdated; or it can be as simple as a clerical error.
- Look for comparisons that are contestable.
For instance, the style or type of home is a bit of an overreach, lot square footage is way too off, the location of the comparable you perhaps feel that is too far from the subject property’s location, and is not indicative of property’s neighborhood representation.
- Request the appraiser to do another appraisal or do a good twice over.
Most real estate appraisers will not object to this request. But don’t expect a huge swing in the price difference in smaller properties versus larger more expensive luxury properties.
For instance, if a property is worth $300,000, you cannot expect a $50,000 value correction. But for a luxury property, a $100,000 valuation adjustment on a $20m home is nothing.
- Look into the real estate appraiser.
If you notice a scenario like with the $300,000 example listed above and the $50,000 correction, then you may want to dig into the skills and abilities of the appraiser.
And the obvious thing is if you feel that there is something fraudulent, you can report them to the department of state.
11 Factors that Lower a Home Appraisal
- Location of the house
- Home comparables
- Market Conditions
- Adjustments to the property size
- Quantity of bedrooms and bathrooms
- Square footage
- Age of the home
- Curb appeal
- Major home systems and appliances
- Condition of the dwelling and its systems
- Experience of home appraiser
Will a lender fund a mortgage with a low appraisal?
An appraisal that is lower than the purchase price of your new house might disrupt the entire process of purchasing a property.
The appraised valuation of the house is used by mortgage lenders to establish your loan-to-value ratio (LTV), a significant component of the underwriting process. LTV indicates the proportion of a home’s worth that a lender will finance.
Your LTV must remain within the loan’s predetermined limitations.
Lenders always use the appraised value, not the purchase price, to compute the LTV.
If the appraised value is less than the purchase price, your lender will likely reduce the loan amount. Therefore, you must either pay extra out of pocket or negotiate a lesser price with the vendor.
Conclusion
If dissecting the report still doesn’t deliver the outcome you expected, then you will have a few options. Go back to the negotiating table with the seller and ask them to do a price adjustment.
If the seller refuses to bring down the price to the valuation amount on the report, then you need to make the decision. You have one of two options at this point: to put up the difference in cash at closing or walk away.
Finding a buyer that is willing to put up the difference in cash, rarely happens.
