So you got a low appraisal on the house you want to buy.....Now what?

By
Managing Real Estate Broker with Jody Keating Connective Realty,LLC, Bryan/College Station,TX

Low home appraisalsSo you've been pre-approved for a home loan, your under contract to buy your dream house, the inspection goes well and there's only the lender appraisal to go.

Then the appraisal value comes back lower than the agreed upon purchase price and your lender won't approve the purchase.

Now what?

You still have some options and there are ways to fight a low appraisal. Sometimes they're successful, other times they're not but don't kill the deal because of a low appraisal without trying some of these options first.

1. You can go back to your lender and appraiser and ask them to review the appraisal. You can have your REALTOR compare the properties that were used by the appraiser to make sure that the most current local comparable properties were chosen in order to establish value. If there is other pertinent information that was not included in the appraiser report that could affect the value, you can inform the lender and ask for a second appraisal to be done.

2. You can hire your own appraiser (for FHA loans make sure the appraiser is on the approved appraisal vendor list) and conduct a second appraisal. You can then present it to the lender and ask them to compare both appraisals.

3. You can ask the seller to lower the purchase price to match the appraised value. This can be a tricky situation, although, provided that you have a financing contingency within the contract, if the seller refuses to lower the purchase price you can still walk away from it and get your earnest money back. A savvy seller, however will realize that if the appraisal is correct and they don't lower the purchase price to match it then it's likely that the same problem will occur with a new buyer.

4. You can increase the downpayment to match the difference in the appraised value and the purchase price however you need to make sure to discuss this option with your lender before making the decision. The increase in downpayment may affect your loan and your lender evaluation of your loan. Only choose this option if you believe that the purchase price of the property is the true value of the property to you.

5. You can ask the seller to take a second note for the difference. This is also a risky option as the lender may protest, so make sure you discuss it with them prior to approaching the sellers. In certain circumstances the lender may approve and the sellers may be in the position to finance the difference.

6. You can walk away from the property.Provided that a financing contingency is in place, you can get the earnest money back. If the appraised value is accurate and correct and the purchase price is more than the appraised value then very often this is the best option but it shouldn't be your first option. Having your REALTOR recheck the appraisal comparables and asking your lender to re-evaluate the appraisal using additional information or more accurate comparable properties can at times adjust the appraisal value.

Communication is key and working with a professional REALTOR and lender can make all the difference. Make sure that you are informed of all the options that you have but understand that time is of the essence. Your contract with the seller is also bound by time, so it is very important that you are informed of the options immediately, if not prior, upon recieveing a low appraisal, you will then be in a better position to decide your next course of action.

This is a buyers market and there are new properties coming on the market every day, perhaps a low appraisal just means that there is a better valued property waiting for you to find it. 

 

Comments (6)

Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

So sad that appraisals are such a big problem now. All because our "wise" legislators were looking for someone to blame for the housing mess.

Jan 03, 2012 04:25 AM
Aaron Mazurek
Coast Realty Group, (Powell River) Ltd - Powell River, BC
Powell River Property For Sale (BC)

Thank you for these points. Very succinct and easy to understand, plus this is very timely!

Jan 03, 2012 04:29 AM
Marilyn Boudreaux
Marilyn Boudreaux, Century 21 Bono Realty - Lake Charles, LA
Lake Charles LA Century 21 Realtor

great explanation!  We have been seeing lower appraisals in my region I am not sure why all of a sudden it is a problem and could be just part of the (AMC) Appraisal Management Companies that banks have to go through to assign appraisers. No one is happy about having to comply with this but our hands our tied as we hold our breath and await the appraiser.

Jan 03, 2012 06:59 AM
Jody Keating
Jody Keating Connective Realty,LLC, Bryan/College Station,TX - Bryan, TX
Broker/MM/Realtor, Bryan / College Station, TX

Marte, honestly I prefer an appraisal to be right and accurate than trumpted up as they have been in the past but all too often I see appraisals that are inaccurate because they are overly cautious. 

Aaron, your welcome and I hope they help.

Marilyn,  Your right our hands are tied and it is really nerve racking waiting on the appraisal but so long as both the appraisal is conducted right with the correct CMA properties and the home was realistically priced in the first place then it should work out. Of course I say that with a song and a prayer in my head :)

Jan 03, 2012 07:37 AM
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

Jody - This has been an issue for years.  As the market has flucuated (down in many areas) as far as the value of homes, this little wrinkle has popped up time and again.  It's only right to point out ways this can be dealt with.  Options can be EVERYTHING.  Nice work:)

Jan 06, 2012 07:48 AM
Jody Keating
Jody Keating Connective Realty,LLC, Bryan/College Station,TX - Bryan, TX
Broker/MM/Realtor, Bryan / College Station, TX

Thanks Jason, I think too many buyers and Realtors hit the panic button when they get a low appraisal without considering any options. 

Jan 07, 2012 04:40 PM