The home buying process involves many ‘do-or-die’ moments, and for those buying with the help of a mortgage, one of the biggest will be the home appraisal. This is when your bank or lender sends a trained professional to evaluate the property and determine its current market value. A low appraisal can spell trouble for a buyer and usually means a delay in the transaction as they try to either renegotiate the sales price. For sellers, it might mean having to reduce their asking price or lose the deal altogether. Fortunately, there is another option. Since home appraisals are not an exact science, it is possible to have them reevaluated.
Below, we’ve covered everything you need to know about challenging a low appraisal. There’s no guarantee you’ll be successful, but if you truly believe you have a case, then it’s always worth a shot.
What is a Home Appraisal, and Why does it Matter?What is a Home Appraisal, and Why does it Matter?
A home appraisal is an unbiased evaluation of a home’s current market value. They’re almost always used in any purchase-and-sale transaction and serve to assure lenders that the homebuyer is not borrowing more than the property is worth. This is important because if the borrower on their loan, the bank will seize the home as collateral and resell it to recover the loan amount. That’s going to be hard to do if the home is worth less than the remaining loan balance, which is why lenders are so strict about ensuring each home is properly appraised.
For buyers, a home appraisal that comes in at or above the contract price will be a good thing. It means that, barring any other difficulties, the sale can proceed as planned. However, a low appraisal will mean a delay that could jeopardize the transaction. Buyers do at least have an advantage here in that they can use the low appraisal to renegotiate for a lower selling price. Just be aware that this can backfire in a seller’s market and lead to the deal falling apart. It’s certainly in every seller’s interest to get a high valuation and worth the effort of getting a second opinion if you believe the first one was inaccurate.
What Causes a Low Appraisal?What Causes a Low Appraisal?
Most home appraisals cost several hundred dollars and typically fall on the borrower to pay. The appraiser must be fully accredited as per their state’s laws and be completely impartial with no direct or indirect interest in the transaction. When appraising a property, the home’s sales price is not used as a factor in the evaluation. Instead, they use a complex combination of data points, including the location, square footage, current market trends, amenities, comparable sales, and much else.
One of the main reasons for a low appraisal is that the home is not well maintained. While it is true that a shoddy appearance should not impact how much a home is worth, it invariably does. Appraisers must use their own judgment in evaluating each property, and they can’t help it if a weak first impression affects that judgment. Another cause for low appraisals is market factors. A slow market with lots of sellers and few buyers can lead to a drop in prices that affect market comps. If there are few comparable sales, then that can also make the appraiser’s job more difficult.
How to Challenge a Low AppraisalHow to Challenge a Low Appraisal
Appraisers are only human and can make mistakes. If you believe the appraisal is off by a significant amount, then you can challenge their judgment by doing the following:
Double Check their Figures – Every appraisal will come with a complete document outlining how they arrived at the figure they did. The first step in challenging an appraisal is to double-check these numbers for errors or things they missed. Does the square footage they measured match what you know the home to be? Did they include all the bedrooms and bathrooms? If you find errors or missing details, then provide evidence to counter these and ask that they perform another evaluation with this new information.
Know the Neighborhood –Appraisers should know the area they’re working in and be familiar with it. If you believe they have missed some things that could affect the valuation, the home is located in a good school district, then make sure you bring this to their attention.
Examine Comparable properties – Sales prices don’t always tell the whole story. If a home in your area sold recently for significantly less than it should have (due to reasons that were not publicly disclosed), then make sure the appraiser knows about this. Also, check that the home sales they compared are actually comparable. They should have sold recently, be in the same zip code and be of similar size.
Be Specific and Tactful – Appraiser’s rarely like to be told they’re wrong. When challenging their assessment, try to do so in the most tactful way possible. Don’t try to grandstand or blame them. Be specific and concise in your counterarguments for why you think their value is off. Let the facts speak for themselves.
How You Can Increase Your Chances of a High AppraisalHow You Can Increase Your Chances of a High Appraisal
Like most problems in the real estate world, prevention is the best cure. Getting an appraiser to reassess their valuation is not easy. The best approach is to do all you can to ensure you don’t get a low appraisal to begin with.
Ensure the home is clean and tidyEnsure the home is clean and tidy
The appraiser will only be in your home for a short time, so you must strike a good impression. Have the entire home fully cleaned and decluttered before their arrival. It should look just as good as it did during its private showings and open houses. If the property is a rental, then ensure the tenants have it cleaned properly in time.
Make a cheat sheetMake a cheat sheet
Measure the square footage of every room and record it on a cheat sheet with a simple blueprint of the home’s layout. Give this to the appraiser when they arrive. While it’s almost certain that they will do their own measurements, at least this way, you can be sure they won’t miss anything. It’s also a good idea to include details about any recent improvements you’ve had done on the home, especially those that can’t be seen like new plumbing or electrical.
Contact the appraiser ahead of time and ask how they will be doing their job.Contact the appraiser ahead of time and ask how they will be doing their job.
While your lender will be responsible for requesting and sending an appraiser to your home, they actually have little control over who gets the job. Lenders typically find appraisers by sending out an email to all the ones on their internal lists. The first one who responds and agrees to the fee usually gets the job. Once you’ve heard from your lender that an appraiser has been found, it may be worthwhile to reach out to them. Find out if they’re local and know the area. If not, then take steps to ensure they’ll have all the information they need on arrival. Mostly though, just let them talk and get a sense of how they perform an appraisal. It may help you in understanding how their taught process works.
Final ThoughtsFinal Thoughts
When they go smoothly, a home appraisal is just another box to tick on the way to closing day, but when they come back as lower than expected, that can cause problems for both the buyer and seller. Just understanding the process by which an appraisal works can help move the process along again. While getting an appraiser to change their assessment isn’t easy, it is possible and can lead to a bump in your home’s valuation.