The home-buying process is a high-stakes thrill ride full of exhilarating ups and 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.”
A low appraisal will either make you feel as though you got the raw end of the deal by paying more than the property’s worth or, if you don’t have extra cash to hand over, the deal can fall apart. In many scenarios, your lender is 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 difference yourself.
Multiple-offer situations in a seller’s market often drive purchase prices higher than any comparable sales in the area, and this can result in a low appraisal. Sellers are also rightfully concerned that appraisals will be low in buyer’s markets when prices are soft or falling.
In fact, low appraisals can happen in any marketplace—hot, cold or neutral. Fortunately, you’re not without options when and if you’re faced with one, from adjusting the sale price to tweaking the down payment or arranging for another appraisal.
So, what do you do if this happens to you? You have four options:
Sometimes called a “rebuttal of value,” the appraisal appeal takes some work. In fact, it’s a total team effort.
That means everyone puts on their best 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).
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 valuation.
Spoiler alert: It’s a hard battle to fight.
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.This is up to you to bring up to them.
If you’re lucky, you and the seller will both budge a little.
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 six months.
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 next time around!