Here's How You Can Fight A Low Home Appraisal
So you ordered a home appraisal on the home you are buying and the appraisal came in low. While this is a rare occurrence, it does happen. The good news is, that there are steps you can take to attempt to raise the value of the appraisal and keep the transaction moving forward.
Why is it important to get an appraisal?
A traditional mortgage requires a home appraisal to move forward. This is known as the appraisal contingency. This is a protection for the lenders to make sure they are not overpaying for a house. If the home appraisal comes in low, that is the end of the transaction under the current negotiated terms. If the appraisal cannot be raised, the terms of the deal will have to be renegotiated or done away with altogether.
Sellers may get an appraisal to get a good idea of what their home is worth and how much they should list it for sale.
It is important to note that an appraiser doesn’t use the listing price or the contract price as a factor in their valuation of the home. They use data from the local real estate market from a variety of sources to determine their result.
A seller’s market can lead to low appraisals as high buyer demand and low seller supply drive prices up faster than normal appreciation. We are seeing the high demand and low supply leading to higher home prices, but homes are by and large appraising well. However, due to the rapid price increases in the last few years (+27.7% in Boise year-over-year), there was a rise in appraisal gap coverage contingencies, where the buyer agrees to cover the gap between the low appraisal value and the sale price as a way to secure the home. This is also due to sellers being less likely to come down on price in a hot seller’s market where homes can go pending in a few days or even a few hours after going live on the MLS. If a buyer is unwilling to pay the difference, the sellers should be able to quickly find a buyer who will.
Why would a home appraisal be low?
A home appraisal is the confluence of market research and analysis, as well as the in-person inspection. A large part of the appraisal is the current market conditions and the availability of comparable properties (aka “comps”).
Comps are defined as homes in a close and similar area, with similar size and style, and have been sold recently. The lack of comps near the home due to seasonality, location, or lack of sales can make it hard for the appraiser to get an accurate view of the home values in the area. As such, this can lead to a lower appraisal.
In addition, if the home is not well taken care of or is messy, it can give the appraiser a sign that the home has a lower value due to its poor condition. Appraisers are human, after all. To nip this in the bud, deep clean the interior and exterior of the home so it can put its best foot forward.
How do I prevent a low home appraisal?
Try to get a local appraiser - A local appraiser will know the market and area better than an appraiser from outside of the area. You cannot ask for a local appraiser after the events that caused the Great Recession, but using a local lender can increase the chances of securing a local appraiser.
Get your home showroom-ready - As we mentioned above, an appraiser will judge a book by its cover. Get the inside ready by decluttering and depersonalizing. This will be easy if you get your home professionally staged prior to selling the home. Power wash the exterior, tidy up the gardens and flower beds, and mow the grass every couple of days to look like a golf course.
Prepare all relevant documents - Find receipts and bills for repairs, updates, and upgrades. Have as much information as possible available to the appraiser that shows the condition of the house. The more the appraiser knows about the home, the better chance you have of getting priced a little higher.
Get comps beforehand - If your real estate agent was doing their job well, they will have had comps drawn up already to determine the price point of your home. Have these comps ready and on hand with the repair/upgrade documents for the appraiser to review. The appraiser can use these in conjunction with the comps they draw up themselves.
Home information - Get information about the house itself together as well. Make sure your home’s square footage and property surveys are accurate and up-to-date, as clerical errors and measuring errors can impact how your home is evaluated. Also, be sure to have details such as when the house was constructed, the number of rooms, bedrooms, bathrooms, and floors/basements are accurate.
Can I fight a low appraisal?
Say that the home appraisal comes in low—again, this is a rare occurrence, but it does happen. Can you appeal it?
The short answer is: yes, but don’t expect it to change by a lot.
Appraisers are human, too, and clerical mistakes can happen. If your appraisal comes in low, there are ways for your real estate agent to try to get the appraisal bumped up a little.
Double-check the comps - Your agent can couple-check the comps the appraiser used with their own comps. It may also be beneficial to create new comps in case other comparative properties have sold since they checked last. More data may help sway the appraiser’s assessment.
Neighborhood information - Whether or not your appraiser is local your real estate agent can provide additional information to the appraiser. Information about school districts and even school boundaries within the district can affect the price.
In summary, an appraisal appeal should be detailed, succinct, and without any fluff—not a knee-jerk reaction. Of all the times to listen to and follow your real estate agent’s advice, a low appraisal is one of the most important times.