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What You Can Do If a Home Appraisal Comes in Low

Tuesday, January 30, 2024   /   by Sonya Reiselt

What You Can Do If a Home Appraisal Comes in Low

Before extending a mortgage loan, banks require an appraisal to ensure the home's value justifies the loan amount.

When an appraiser evaluates a home and estimates a value lower than your offer, it can be frustrating and even disappointing. However, this is not an uncommon scenario, as appraisal contingencies are a major source of issues in real estate transactions.

To conduct an appraisal, the appraiser analyzes the property's condition and must be certified in the state where the property is located. During the appraisal, the appraiser examines many features such as the year the home was built, zoning regulations for the neighborhood, construction specifics including the foundation type, and available utilities and amenities.

For conventional loans, an appraiser typically provides a report to the lender within about a week. However, appraisal reports for VA and FHA loans can take longer to complete since they require more detailed information.

There are many reasons an appraisal may come in low. For example, a lack of comparable homes ("comps") can drive low appraisals. In a hot real estate market, home values may be rising rapidly, but appraisals may lag behind these fast-moving prices. Also, if many homes in a neighborhood have been remodeled to increase value, the comps will not reflect the full value of an unremodeled home.

So what if your appraisal comes in low? What can you do?

Cover the Difference in Cash

If a home appraises for less than the sale price, which can jeopardize the deal, the buyer and seller have a few options to potentially save the sale. The buyer could pay the difference between the appraised value and sale price in cash, if the lender allows it, to maintain the needed loan-to-value ratio. Alternatively, the buyer could offer to cover some of the seller's closing costs to make up for the appraisal gap without putting up more cash.

Price Reduction

The simplest solution, whenever feasible, is to reduce the price if it was set too high. The lender will be satisfied, as will the buyer, allowing the deal to proceed. Consider that if you allow one buyer to walk away over this issue, there is a strong chance the next buyer's lender may encounter the same problem.

Dispute the Appraisal

You do not have to accept an initial home appraisal. While your lender may use the first appraisal, it is worth trying to dispute it or request a second appraisal.

As a seller, you should request a copy of the appraisal report so you can review it for any major errors. Though only the lender can officially ask for a revised appraisal, it's worth asking them to re-examine concerning aspects.

Get Comps

Once the agreed upon sale price has been justified by a list of comparable properties compiled by the real estate agents working on the deal, you can provide the list to an underwriter and request that they review the property appraisal.

If an appraisal comes in low, there are solutions you can explore, such as negotiating a middle ground with the seller to split the difference between the sale price and appraisal. A skilled agent, such as The Homesfinder Realty Group, can help guide you to a satisfactory resolution.

Are you looking to buy or sell in the Lowcountry? Whether it's a military relocation or a dream home search, our full range of services has you covered. Explore our powerful home search tool for your Lowcountry dream home, and stay tuned to our blog for valuable real estate and local information. Contact me at 843-321-2158 – let's make your real estate journey successful! 

The Homesfinder Realty Group 208 Carteret St Beaufort, SC 29902
Sonya Reiselt
208 Carteret Street
Beaufort, SC 29902

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