Nothing can chill a real estate transaction faster than an unexpectedly low appraisal, but it doesn’t have to be a death sentence of the deal. Here are some steps you can take when the house you are selling appraises too low.
1. Don’t panic if your house appraises too low
A low appraisal is a bummer, but it’s not necessarily the final say on what your home is worth. What you need here is more information on how the appraiser reached his or her conclusion.
2. Begin by asking for a complete copy of the report
If you are the buyer, federal law requires that the mortgage lender provide you a copy of the appraisal report through your real estate agent. As a seller, you will have to request it. Do this by contacting the buyer through his or her agent.
3. Once you have a copy of the appraisal, go over it with a fine-tooth comb.
First, check for basic mistakes. Were the number of bedrooms, bathrooms, square footage, etc. marked correctly? Was the appraiser aware of improvements and upgrades?
4. Next, look at what the appraiser used as comps.
When Jack Whiteside was trying to sell his home, a low appraisal threatened to kill the whole deal. But as Jack studied the appraisal, he noticed the properties used as comps to his house actually weren’t comparable. One of the comp homes sat right on a very busy street. It contrasted starkly to his own home, tucked away on a highly desirable cul de sac. Another comp used was two streets to the north. On paper, this might make sense, but in Jack’s case, two streets north marked a very different neighborhood. An appraiser with more knowledge of the neighborhood would be aware of this.
5. Get your own comps.
If you and your real estate agent agree that the appraiser made a mistake here, do some homework. Jack’s real estate agent did more research and found homes better suited for comparison.
6. Contact the Lender
Once you have all the information you need to prove the appraisal is undervaluing your home, you have a couple of options. First, your agent can contact the lender (with the buyer’s permission) and present the errors found in the appraisal. Sometimes, the appraiser, upon seeing the new information will simply adjust the appraisal and everyone leaves happy. If that doesn’t happen, you can ask the lender to order a second appraisal. The lender may agree, but you will pay the cost. Bear in mind, there is no guarantee the second appraisal will yield a higher number.
7. Consider renegotiating
If the appraisal is accurate but simply lower than you expected, you may consider renegotiating the sales price of your home. The buyer’s lender is not likely to approve a loan for a sum greater than the home’s appraised value. If lowering the price is not an option, your potential buyer may choose to make up the difference between the selling price and the appraised value.
Selling your home can be highly emotional, especially when a stranger affixes an unemotional, black and white dollar value to what is likely the biggest investment of your life. But this is precisely the time to check your emotions and respond with a calm, pragmatic approach. If the appraisal is wrong, then do the leg work to gather the information that will spotlight those errors. If it is right, accept it, and go from there.
At Landmark Title Assurance Agency, we have the expertise to handle even the most complicated residential and commercial real estate transactions. For more information, visit our website or call (602)748-28000.