It's disheartening when a house appraisal comes back lower than the purchase price you and the seller agreed on. Your loan will cover only the appraised value of the home, so having to cover tens of thousands of dollars more than you anticipated could throw a serious wrench in the plan. Here's what to do if the home you made an offer on appraises low.
What does a low house appraisal mean?
A low appraisal represents a problem for buyers who are depending on financing to help them purchase a home. Lenders cannot finance a property for more than the appraised value. So unless you have extra money to fill the gap, a low appraisal could ruin your ability to purchase the home.
So what can you do if the home you want to buy appraises lower than you and your lender anticipated ?
How to handle a low appraisal
The first step is to fight the lower-than-expected value, says RJ Winberg, a Realtor® in Orange County, CA. With the help of your agent, you can gather your own comps, or comparable properties in your area, and look for reasons to make the case that the appraiser got the number wrong. Look for issues in the report such as a missing bathroom or incorrect lot size, as those could work in your favor and increase the appraised value of the home.
"Appraisers that aren't familiar with an area can often miscalculate the real market value of a property, and this approach can sometimes work," Winberg says. "However, more often than not, the appraiser will stick with their value, or only make a very slight adjustment."
Negotiate a low appraisal
If the appraiser won't budge, you can return to the negotiating table and offer the seller a lower figure. It might be time for a reality check. After all, if the appraisal was lower than the price you were going to pay, chances are slim that the seller will find another buyer who doesn't require a mortgage and can avoid that low appraisal issue.
"Oftentimes a seller is willing to come down on price or meet the buyer halfway in order to keep the deal from falling apart," Winberg says.
If the sellers won't budge on price, they might be willing and able to provide a loan themselves to bridge the gap. That way they still get the offered amount, and you still get your house.
Get another opinion
If you aren't getting any help from the first appraiser or the seller and you strongly believe a mistake has been made, you can handle a low appraisal by paying for a second one, says Michele Lerner, a real estate expert and author. But while this can move the needle, Lerner cautions that there's no guarantee that the second appraisal will be any higher, and you could simply be out an expensive appraisal fee.
If you have an appraisal contingency clause in your purchase contract (which is something most buying agents and real estate attorneys recommend), you have the right to cancel the deal due to a low appraisal. It might cost you your dream home, but Winberg says this could work in your favor in the long run.
"This inconvenience may actually be a saving grace, preventing you from getting in over your head on a property," he says.