real estate appraisal

Low appraisal leave you shocked? The real estate market is constantly evolving and identifying real estate comps is not an exact science. If you have received a low appraisal for a property you are buying or selling, here is what you need to know.

Why Does a Low Appraisal Matter?

For sellers, a low appraisal can impact how much you are able to get for your home. Buyers may not be able or willing to pay more than the appraised value of a property.

For buyers, a home appraisal can impact how much your bank is willing to lend you and whether you are able to complete the purchase of a home.  If you receive a low appraisal that is significantly less than the selling price of the home, you will need to make up the difference between the mortgage and the selling price.

What Are Home Appraisals Based On?

To determine the value of a home, appraisers look at real estate comps.  These are comparable homes that have sold recently, have similar features and amenities, are similar in age and condition, and are located near each other. 

Shifting home prices, gentrifying neighborhoods, and more can affect both real estate comps and appraisals.  

Who Completes the Appraisal?

If an appraisal is part of the mortgage application process, your mortgage company will work with a third-party appraiser who will assess the value of the property. This is a necessary part of the mortgage application process and will only occur after a buyer’s offer has been accepted. Similarly, homeowners looking to refinance may find that their lender requires an appraisal. If so, the lender will hire an appraiser.

Sellers can also hire an independent appraiser before listing their home to help with setting the listing price.

How Does a Low Appraisal Affect a Mortgage?

Over the past couple of years, many homes have sold for more than their appraised value because of low housing inventory. Buyers felt it was worth their while to pad their bids by offering more than the appraised value. This is not always possible though.

If there is a large discrepancy between the selling price of a home and the appraised value, a buyer may not be able to complete the purchase. Similarly, sellers may find it difficult to sell their property for that higher asking price.

Can a Buyer Renegotiate After a Low Appraisal?

Yes. If a home receives a low appraisal, a buyer and seller can attempt to negotiate a new sale price. Both parties must be in agreement for this to happen.

Can a Buyer Back Out of a Sale After a Low Appraisal?

An appraisal contingency allows a buyer to call off a sale and have their deposit returned should they receive a low appraisal. This type of contingency protects buyers and helps ensure they are able to get a mortgage.

Appraisal contingencies can also detail how much over an appraisal they are willing to pay on a home. For example, in a competitive market, a buyer may submit an offer with an appraisal contingency stating that they will pay the sale price, or if the home does not appraise for the sale price, $10,000 more than the appraised value.

What To Do After a Low Appraisal

If you have received a low appraisal, you have several options.

Follow Through With the Sale

If the buyer is able to make up the difference between the mortgage and the selling price, the sale can continue as long as all parties agree.

Renegotiate the Sale

If the buyer does not want to make up the difference between the mortgage and the selling price, they may ask to renegotiate the sale so the sale price is more in line with the appraisal.

Cancel the Sale

If the parties cannot agree, either party can cancel the sale of the property. 

Lower the Listing Price

If a seller seeks an appraisal before a sale and receives a lower-than-expected appraisal, they can adjust their listing price accordingly.

Appeal the Low Appraisal

Yes, it is possible to appeal an appraisal. However, there is no guarantee that an appraiser will change their mind. 

If you are attempting to purchase a property and receive a low appraisal, you can work with your mortgage company to appeal the appraisal. You will need to submit evidence regarding why you think the appraisal should be appealed. This includes information about the property that may not have been evident from the listing, like new upgrades or additions, and real estate comps that have some for more than the low appraisal. 

Need Help? Just Ask!

If you have questions about buying or selling a home, don’t hesitate to ask. I love helping my neighbors find their next Tampa property!