Appraisal came in low… now what?
What Happens When My Appraisal Is Low?
No matter how good the real estate market is, there is always the possibility that your home’s appraisal will be low. It can happen for a wide variety of reasons, and when it does, it is stressful. The fact that the appraisal is lower than the agreed-upon sale price often derails the deal, but it doesn’t have to!
We’ve put together a list of tips to help you understand why your home’s valuation is low, what you can do about it, or better yet, how you can avoid it.
What Does a Home Appraiser Look At?
An appraiser records the disposition of your property and assesses its condition. Appraisers must be qualified and certified in their state and, in most states, must adhere to the Appraisal Foundation’s Uniform Standards of Practice for Professional Appraisal. Depending on the condition and size of your property, an appraisal can be a quick 15-minute visit or a two to three-hour review.
Appraisers look for a variety of details, according to the Uniform Residential Appraisal Report Form:
- The dimensions of your property and the year your home was built.
- Neighborhood characteristics, including zoning classification.
- Construction details: type of foundation, if you have a basement or attic, type of entrance, car storage, interior walls, and floor materials
- Utilities and Amenities – Whether you have utilities or other off-site improvements (and they are typical for the market area), have a fireplace or patio, features like energy-efficient appliances, types of plumbing fixtures, and lighting
- General condition and necessary repairs
- The appraiser then looks for similar sales in the area during the past 12 months to form an opinion on the fair market value of your home.
The appraiser writes a report (typically 10 pages or less for residential properties) for the lender, which on average takes less than a week. FHA and VA loan appraisals can take a little longer because these lenders require more detailed appraisal reports.
Here’s Why Home Appraisals Come In Low
All these variables leave a lot of room for a weak evaluation.
For example, if the market is moving faster than normal, comparison sales or offsets often don’t keep pace with current prices. This also applies to a slow market, where the lack of quality comps makes it difficult to determine the market value of the property.
Your appraisal may also suffer from missing or incorrect comps
Perhaps a neighboring property was dilapidated when it was sold, but the new owners have rehabilitated it or public records have not yet recorded the recent sale of a property similar to yours. Foreclosures, bank properties, private sales to relatives, and distressed properties in your area can also skew the mix.
In terms of price, if houses in your area tend to sell for, say, around $ 500,000, where you set the asking price, and one of the buildings an appraiser selected sold for $ 380,000, the overall average drops to $ 450,000. Think of an appraisal as the appraiser’s “price opinion,” Hoffman says. “It’s up to the appraiser’s discretion to follow up and figure out why there’s an outlier.” That might mean researching a previous sale through public records or the broker who sold the property.
“Every once in a while I’ll get a situation where an appraiser will call me and say, ‘Hey, I’m running comps in this neighborhood or in this building, and I see you sold one before that was for less than the average—or more than the average. Can you tell me why?’” Hoffman says. “But I have to say, 90 percent of them don’t do that.”
Some appraisers may be new to the profession
According to the March 2017 National Association of Realtors’ Trends Study, fewer than one in five respondents are newcomers to the field. The study points out that regulation, compensation, and liability are factors that make training difficult.
The appraisers also have a heavy workload, according to the study. Almost 35% of respondents have completed more than 300 assessments in the previous 12 months, an increase from the previous 12 months.
An appraisal might not be thorough
In New York City, an appraiser makes an appointment with a listing broker to see the property, but in other parts of the country, an appraiser might just drive by and look over the outside. “Some appraisers don’t even get out of the car,” Hoffman says.
Homeowners tired of having their homes on the market may also have neglected minor home repairs and loosened up on cleanliness. These little things can also ruin your home.
“Appraisers are subjective,” Hoffman says. “If they’re not wowed by the property and sold on the property while they’re there, that can be an issue.”
How to Get the Best Appraisal You Can
To start your appraisal off on the right foot, gather all important documents for the appraiser, such as a survey that verifies the size of your property and receipts for any recent improvements.
Ask your real estate agent to discuss any unusual low or high sales circumstances in your area and provide you with their own compositions. Hoffman says he is preparing a complete appraisal package, which includes recent scale models and the floor plan of the property.
Then clean the interior and exterior. Touch up any peeling paint, replace the wobbly hinge in the kitchen cabinet, enclose pets, and eliminate clutter. Trim the hedges, mow the grass, and clean the gutters. You want the appraiser to verify that your home is well maintained.
“Treat it like you would a buyer,” says Hoffman. “Clean. Take out the dirty dishes. Clean the windows. … This is a demonstration. You have to sell to the appraiser.”
You can also pay an appraisal before listing your home and then set the sales price accordingly. This gives you an advantage because your home will appear to be reasonably priced from the start. Angie’s List notes that the average cost to appraise a single-family home is between $ 300 and $ 400. An appraisal for a multi-family building starts at around $ 600.
What To Do If Your Appraisal Comes in Low
If your rating is low, don’t get excited. There are ways to reverse this situation.
1. First, look for errors in the home appraisal
The appraisal report should be available in less than a week. As a seller, you will not automatically receive a copy of the report, but you can request a copy and the lender must provide it to you within 30 days.
As you review the report, check the baseline data (square footage, number of bedrooms, and bathrooms) and how the appraiser described the features of your home.
The advisor may not have realized that you have energy-efficient lighting and fixtures. (It’s like talking to your auto insurance company about your vehicle’s safety features so you get the best possible rate.)
“If there really is a mistake, 99% of appraisers will want to correct it, even if the property’s valuation doesn’t change,” said Lance Coyle, Dallas-based appraiser and former president of Appraisal. Institute, in an article by Freddie Mac.
2. Challenge your home appraisal with a new value survey
If you and your real estate agent have done your homework and are convinced that the home appraisal was incorrect, you can challenge the appraisal with appeals procedures called “Appraisals of Value,” according to the Appraisal Institute.
The book Appraising the Appraisal: The Art of Appraisal Review describes the most common grounds for appeal, including:
- Poor analysis of comparable properties (say if two of the comps used were sold five years apart instead of including more recent sales).
- Do not take into account concessions or special financing
- Gross living space calculation error
- You also want to check if the appraiser performed a proper inspection.
- In addition to the appeal route, you can file a formal complaint with your state appraisal board or the appropriate professional appraisal body if you believe the appraiser who appraised your home was unqualified.
3. Request a new home appraisal
If you have been able to show that the first appraisal was problematic or inaccurate, the buyer can request a new appraisal from their lender from a more qualified appraiser. Ultimately, it is up to the buyer, as he will pay the bill.
“It’s very difficult,” Hoffman says. In some cases, “the case may die.”
4. Negotiate with the buyer to save the deal
As a homeowner, it is your decision to keep the sale price or lower the appraised value. But there are ways to find common ground.
Hoffman says he is happy to negotiate with the buyer’s agent. “I always encourage you to call me: let’s talk about it.”
For example, a buyer may make a larger down payment to cover the difference between the appraised value and the sale price or pay for private mortgage insurance. You can also make up part of the difference by covering the buyer’s closing costs.
Appraisal Came In Low?
Sure, a low appraisal adds stress to the process of selling your home, but at this point, you’re really close to the finish line.
If you prepare ahead of time and work with a top-tier local realtor to help you overcome the final hurdles down the road, you’ll know how to handle whatever the appraisal process brings, and hopefully at the price you want.