In the last few years, the average value of a home appraisal has risen significantly. From 2013 to 2022, the average rose from $280,000 to $395,000. While this is good news for most homeowners interested in selling their houses, what if a home appraisal comes in low?
It’s the moment every homebuyer dreads. You await anxiously with trepidation as you wonder if this purchase that has meant so much will turn out okay or whether a low appraisal could potentially put all of your hard work for naught. Don’t worry just yet, though.
There is plenty you can do to understand better why a home appraisal comes in at less than expected and attempt to adjust the valuation should such an event occur. In this guide, we’ll discuss what steps to take following a low appraisal (plus a quicker option for selling your home).
What is a low appraisal?
A home appraisal is typically a report created by an independent appraiser that puts value on a property. A low home appraisal occurs when an appraiser evaluates a property and assesses it at a lower value than expected.
What causes a low appraisal?
Several factors can contribute to a low appraisal. Most often, they occur if the appraiser believes the property has defects, such as outdated finishes or an insufficient number of bedrooms, that keep it from being worth the agreed-upon purchase price.
Low home appraisals can be stressful for homeowners as they usually come with a low estimate of what the home is worth. This low appraisal affects the sale and potential refinancing plans due to inadequate loan-to-value ratios. The low appraisal can also be an obstacle if homeowners want to tap into their home equity.
However, it’s essential to know that low appraisal shouldn’t automatically trigger distrust between buyers and sellers. Everything depends on the local market and specific house conditions. Likewise, independent professionals conduct home appraisals, so it’s essential to understand that a low appraisal reflects these two factors at play.
This is why you sometimes see a massive difference between appraisal value vs. market value.
How often do low appraisals happen?
Low home appraisals are not uncommon in real estate transactions and may require further negotiation to arrive at a satisfactory agreement between buyer and seller. However, that doesn’t mean they’re entirely common, either.
According to Fannie Mae, low appraisals happen in less than 8% of cases, and many low appraisals can be successfully renegotiated after an appeal. As mentioned above, the frequency of low appraisals depends on the following (among other factors):
- Local market
- Neighborhood conditions
- The independent appraiser
Although low appraisals don’t happen often, you need to consider this potential issue when searching for your ideal property. It could cause a slight road bump in your homebuying process, but it shouldn’t ruin it entirely.
How does an appraisal work?
As part of understanding this part of the home buying process, it’s helpful to really understand how home appraisals work from start to finish. Let’s start with a textbook definition. A home appraisal is a systematic process that real estate professionals use to determine the estimated value of a home.
This process typically begins with the appraiser visiting the home and closely inspecting it. The appraiser notes its condition and features, then collects additional information about home sales in the neighborhood.
Next, the appraiser compares similar home sales, adjusts for differences between them, and develops a figure that reflects what someone might pay for the home if it was listed on the market. This figure is considered the home’s estimated value. It then becomes part of an official report used to assess various legal and financial issues related to property ownership.
What if a home appraisal comes in low?
If a home appraisal comes back lower than expected, the next steps depend on why the home was appraised. If it was due to issues, such as poor condition, outdated appliances, or general wear and tear, you’d have to address them before conducting the appraisal again.
Likewise, you might get a low appraisal in a hot market. If the low appraisal is due to market trends, borrowers can try to negotiate with their lender or look for new financing options. It’s also possible that home buyers might need to put more money down or invest additional funds in home improvements if they want to get their current loan accepted by their lender.
In any case, understanding the necessary steps and consulting an experienced real estate professional are important measures home buyers can take to ensure they get the best outcome regarding their home appraisal. And try not to worry too much. Typically, this doesn’t mean it’s the end of the road for you and your dream home.
Can the seller back out if the appraisal is low? No, only the buyer can back out after a low appraisal. In some cases, if you’ve included an appraisal contingency in the contract, it might be possible. However, it’s rare that that ever happens.
What to do if you get a low appraisal
So, you’ve got a low appraisal, and the seller won’t budge. What are your next steps? Here are three tips for dealing with a low appraisal when selling a house.
Take a second look
Are you sitting there scratching you’re head and wondering, “What do I do if the appraisal comes back low?” Instead of guessing why the home appraisal came back low, take a deeper look at why.
Trust us. We know that if the appraisal of a home comes back low, it can be frustrating. However, taking a second look at what caused the value to be low can help identify what needs to be fixed to increase the appraised value.
Common issues dragging down the appraisal are deferred maintenance, repairs, renovations, or upgrades that don’t bring added value. With some elbow grease and a few fixes, it may be possible to bring the appraisal value in line with what you anticipated.
Renegotiate the purchase price
There is still a chance to renegotiate the purchase price. This could result in you and the seller reaching an agreement that works for both parties. You might also want to investigate why the appraisal came back low, as there could have been a miscalculation on behalf of the appraiser.
To renegotiate, ensure you have all your facts straight. Speak with the seller calmly, so they know you’re serious about reaching a suitable agreement. The most important thing to remember is that both parties must work towards an agreement that suits everyone’s needs.
Both sides should discuss the pros and cons of keeping the original purchase price versus renegotiating it. Candidly exploring all options will ensure the best outcome for all involved. This could involve adjusting the closing date or any incentives associated with getting to an agreeable renegotiated purchase price.
It’s also essential to stay within real estate laws when renegotiating contracts, so consulting an experienced attorney is sometimes a good idea. If you’re selling or buying a home through a real estate agency, they should also be able to help figure out how to get a lower price after appraisal (or if that’s even the right path to take).
Understand the buyer might walk away
Finally, understand that the buyer might walk away if you cannot agree on a new price or fix the issues that led to the low appraisal.
A buyer can lose confidence in purchasing a home if an appraisal reveals property defects or other factors pushing the home’s value below the offer price. When this happens, it is usually best for both parties to step back, reassess, and possibly renegotiate terms on the sale, as mentioned above.
If you’re the buyer and can make any additional repairs or other mitigating steps, consider those. This is especially true if you’re in a buyer’s market and your buyer has a lot of other options to choose from at the moment. Overall, trying to reach an agreement will ensure that all involved are satisfied with the outcome.
Tips for negotiating a low appraisal
So, what are you to do if the appraisal comes back low and you’re the one buying the house? You’ve got a few options, and it’s important to remember that you’re usually the one with the power here. You can take two main routes if you’ve exhausted all of your options and the seller won’t budge in renegotiating the sale price.
Request a second look
Generally, only two parties can challenge a home appraisal: the appraiser’s client (usually the lender) and the buyer. In this context, this means you’re able to request a review or a second appraisal. Any challenge or review must have valid grounds, as appraisers take extreme care in making sure appraisals are accurate and comprehensive.
However, that doesn’t mean that mistakes don’t happen. The most common mistakes appraisers make include miscalculation the square footage of the home or leaving out important yet hidden features that increase the home’s value. If you think the appraisal is wildly off from your offer or the home’s true value, speak with your agent about requesting a review.
Consider an all-cash offer
You might consider bringing an all-cash offer to the table as a last resort. Paying in full upfront eliminates any risk of having the deal fall through due to the appraisal value being lower than expected, as the seller doesn’t need the bank’s approval or appraisal results to go through with the deal.
You may also qualify for a partial cash offer, up to 17.5% of your home’s value!
Furthermore, all-cash offers typically surpass other offers in terms of speed and competitiveness, as all parties are certain that all agreed-upon funds will be delivered. This means you could close on your dream home even faster than other prospective buyers.
Tips for sellers to avoid a low appraisal
Now, what should you do if you’re a seller and want to avoid a low home appraisal? One of the most important steps you can take is having a pre-listing inspection. A pre-listing inspection will determine any issues the house has before it goes to the appraiser. This allows you to address and repair any problems that would otherwise arise during the appraisal process.
Additionally, it’s helpful if you provide evidence of necessary repairs you’ve made over the years to maintain the condition of your home. You should do this as part of preparing to sell your home, regardless of the appraisal.
For example, providing documents such as receipts that show past home maintenance or renovations you’ve completed can give assurance that the house has been kept up. This helps increases its overall value.
What about making new repairs or renovations right before you sell your home? It ultimately depends on the market, what buyers are looking for, and what upgrades you would make. Overall, we suggest you avoid overspending on unnecessary repairs. This may result in you losing money long-term.
The bottom line? Preparing well ahead of time can help avoid receiving a low home appraisal.
Sell your home on your terms
So, what if a home appraisal comes in low? Know it’s not your only option. In fact, the best option these days is to sell your home on your own terms.
Selling your home can be stressful and time-consuming, especially when you put it on the market. To get rid of these worries and get cash for your property quickly, get a cash offer for your home. You don’t need to get an appraisal or open your door to strangers during showings.
Plus, you don’t have to wait around to get closure as cash offers are usually available in days or weeks rather than months, like with a traditional sale on the market. Take the stress out of selling by getting a cash offer instead. It’s as simple as entering your home’s address into our home valuation tool (along with other information like the size and age) and seeing what it’s worth.
Ready to give it a try? Click here to use our free home value estimator tool.