What To Do if an Appraisal Comes In Low

What To Do if an Appraisal Comes In Low

What Is An Appraisal and Who Do They Protect?

The process of buying or selling a home requires many different steps. Ensuring that every piece of the process is taken care of and done correctly can feel like a juggling act — especially when it’s time for an appraisal. 
Appraisals can be nerve-wracking, as they can greatly affect your mortgage, and determine whether the transaction is completed. Thankfully, we are here to tell you what to do if an appraisal comes in low so you can feel prepared and confident in your home buying or selling process. Continue reading to learn more! 

What Is an Appraisal? 

A home appraisal is an opinion of value, determined by a licensed appraiser, who takes into account nearby comparable properties, the condition of those properties, and his or her professional judgment. The appraiser works for neither the homebuyer nor the home seller. The appraiser is employed independently by the lender to ensure that the bank is making a sound, well-informed decision regarding approving a mortgage loan. Oftentimes, an appraisal safeguards a lender from approving a home loan that is more than the home’s fair market value.

Advice From a Carolina Agent 

Redbud Group veteran and expert NC and SC REALTOR®, Jessica Smith says that there are plenty of misconceptions surrounding the appraisal process on both sides of the aisle. “Sellers,” she explains, “commonly assume that improvements made to the home will yield a 100% return on investment (ROI) when it’s time to close out. Unfortunately, that’s just not the case.”
As a rule of thumb, Jessica recommends that homeowners consult with a trusted agent before making any costly upgrades to their home to prevent over-improvement on the property. “I’ve found that buyers are generally unfamiliar with the entire appraisal process,” she said. “More specifically, how an appraisal can directly affect their overall purchase, as well as impact the amount of money that the buyers will be bringing to the closing table.”
Managing client expectations, as well as managing a tight due diligence timeline, fall squarely on the shoulders of real estate professionals. If managed properly, buyers can be made aware of potential appraisal issues beforehand, which may help them avoid costly due diligence-related fees down the line. 

Issues That Arise When Appraisals Don’t Jive

When appraisals come back reflecting a home value that is below what was expected – as represented in the contract’s sales price – it can send both buyers and sellers into a tailspin. 
Last year, the National Association of REALTORS® reported:
  • 12% of agents had a contract fall through due to a low appraisal
  • 23% of respondents said that a contract was delayed by a low appraisal
  • 25% of buyers waived their appraisal contingency clause last August

How to Continue the Sale After a Low Appraisal

When this happens, there are a few remedies to ensure that the transaction continues to progress and close on the expected settlement date.
To start, it’s important to understand that a lender will only provide funding up to the amount that a home appraises. If the buyer can pull resources and bring additional money to the table to cover the disparity, a lender will likely agree to move forward with clear-to-close status. If not, the buy side and sell side may need to work together to renegotiate the agreed-upon sales price to reflect an amount that is closer to the appraised value so that the buyer may move forward with the home purchase. 
If the listing agent is confident that both sides have agreed on an accurate price of the home, your real estate agent may try to provide the appraiser and the lender with a price justification including a solid list of comparable properties, any improvements made to the home that would yield positive ROI, and additional supplementary information that would underpin the strength of the local real estate market. If that isn’t effective, then the buyer may consider selecting a new lender, restarting the underwriting process, and extending the due diligence period. 
Lastly, if the parties are unable to renegotiate the contract price, both sides will have to consider whether or not they will terminate the contract, forfeiting any deposits, causing the deal to fall through, and unfortunately requiring that the home be put back on the market. 

Possible Causes for Home Valuation Discrepancies 

As you can imagine, discrepancies in home valuations can cause headaches for all parties involved in a transaction, and appraisal issues can cause discord within the Carolinas real estate market. While our local housing market is strong, low inventory, rigid lending requirements, and appraisal issues have hurt well-qualified buyers looking to enter the housing market.
When the numbers aren’t adding up, it’s easy to imagine that an appraiser has a personal vendetta against you, but we’re here to confirm that there are legitimate reasons why your home’s value may not have been reinforced. To start, your lender could have hired an out-of-state appraiser, who is largely unfamiliar with the pace of the Carolinian real estate market. And perhaps, the appraiser relied upon truly non-comparable homes. Such as foreclosures, short sales, or dilapidated properties, and he or she failed to make the necessary adjustments for location and/or condition. 

When Life Gives You a Lemon of an Appraisal, Trust That Your Redbud REALTORS® Will Make Lemonade

“A few years ago I had a home my client LOVED, as there was nothing else like it on the market. To me, it was apparent the home was overpriced. The agent shared her comps and we spoke a few times. When we submitted our offer we attached an appraisal contingency to it (now this is difficult in our current market because there are so many multiple offer situations, it is a seller’s market). Fortunately, they accepted. 
Before ordering an inspection, we got the appraisal done. Shocker, it didn’t appraise. We then worked towards negotiating, I even disputed the value and got them to budge a little but it still wasn’t enough to make up the difference. The sellers would not budge. So my client decided to terminate at the time, and she was very upset. She felt it was unfair that they were asking her to pay out of pocket because they chose to do custom work to the house that the appraiser didn’t value as much as they did. 
About 6 months go by and the house is still on the market. I followed up with this agent at least once a month to see if they would reconsider the price. Finally, after those 6 months, they said that if we get another appraisal and the value comes in low like it did the previous time they will consider negotiating. Before going under contract, we negotiated that the sellers would pay $500 in seller-paid closing costs for the cost of the additional appraisal. The value again comes in low, right around what it appraised for before, and we were able to negotiate the contract price to the fair value.” – Jessica Smith

Have an Expert Redbud Group REALTORS® On Your Side

Whether you’re buying or selling a home, you’re going to want a trusted real estate agent by your side to guide you through the process. Thankfully, our Redbud Group REALTORS® are here to help you have a seamless transaction, and answer any questions you may have along the way. At the end of the day, you want someone who will work hard for you — ultimately doing whatever it takes to make all of your real estate dreams come true. 
So, do yourself a favor and click the button below or visit our website to connect with our team of seasoned agents!
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At Redbud Group, we understand that the home buying & selling process can be stressful. You want to make sure you are making the right move and getting the best price for your home. As always, we are here to help you take those first steps to buying or selling a home! Check out our home buying & selling tips and resources for in-depth information about the home buying & selling process.

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