Tips for Dealing With Low Appraisals - For Buyers and Sellers
Tips for Dealing With Low Appraisals – For Buyers
Low appraisals can result in deals that are re-
negotiated, delayed or cancelled. This is one
reason sellers pref er cash buyers who waive the
appraisal contingency. FHA and VA loans where
buyers are putting little or zero down on the home
are especially conservative. This has made it
dif f icult f or many entry level buyers who are
competing against cash investors.
Why are appraisals causing so much dif f iculty? An
appraisal is based on past history, sort of like
looking in the rear view mirror. The appraiser uses
recent comps that are as close to the subject
property as possible. In some markets, appraisers have to subtract f or a “declining market”.
Now that the market is improving, appraisers may not have to subtract f rom the home’s value.
However, they aren’t allowed to add to the value to compensate f or the appreciating market.
Buyers may f ind themselves looking f or a home in an area with limited inventory. They may f ind the
best homes priced above what recent homes have sold f or. And they may not be able to f ind a home
listed f or the price that homes sold f or 3-6 months ago.
Tips for Selling Your Home If The Appraisal Might Be Low:
If you’re selling a home, there are a f ew things you can do to help with the appraisal. Barbara
Bottitta’s “3 Tips To Improve Your Home Appraisal” is a must read f or all home sellers.
These three tips can help. When we go into contract on a home, we remove the key f rom the
lockbox so that the appraiser has to have an appointment with us to access the home. When we
meet them, we already have our comps, any receipts showing home improvements, etc., to give them.
Most appraisers are appreciative. We f ind this is especially important with a custom or upgraded
Appraisal issues are a good reason to price your home right. If your home is a common f loor plan
f or your area, you might be able to justif y a higher price if you have upgrades. Having a swimming
pool, updated kitchen & bathrooms, etc., can add to your home’s value. Those things can help but
they won’t add $100K when comparable homes sold f or $300K. Low inventory and an appreciating
market can also help you get a higher price than comps f rom six months ago.
Tips for Buying a Home If Sellers Ask You To Waive The Appraisal
Appraisals don’t always give a lot of credit to upgrades and a home that’s in better condition. FHA
Make sure the comps used in an appraisal are similar and
that they sold recently.
and VA loans are notorious f or using the lowest common denominator when they do appraisals. This
puts buyers who use those mortgages at a disadvantage when there is a bidding war. The majority
of sellers will pick the cash buyer. Or they may ask you to waive the appraisal contingency.
When the seller asks you to waive the appraisal contingency, your agent should ask f or a reason.
Have they had an appraisal problem with another buyer? Does the listing agent expect the appraisal
to come in lower? Your Realtor will need to look at comps so you know what to expect f rom the
appraisal. Will the sellers agree to a cap on how much of a dif f erence you’ll pay? Do you have the
f unds to make a larger down payment if the appraisal is low? If that isn’t an option, you should
continue your home search until you f ind a home that will appraise.
What if the Appraisal is Wrong?
The appraisal rules have tightened as a result
of tighter lending rules. Many lenders now have
an Appraisal Management Company assign
appraisers. We have seen this result in
appraisers who are not f amiliar with an area
getting the job.
I asked my f riend and top real estate agent in
Framingham MA, Bill Gassett what he advises if
an appraisal comes in too low. Here is what Bill
had to say:
“You should first get a copy of the
appraisal report and check it over with a
fine tooth comb. Over the years I have personally seen errors in a real estate appraisal
report. This can happen for numerous reasons including human error. Maybe the
appraiser was busy at the time, had other things on their mind or just made a simple
The point is that we all make mistakes. Something as simple as marking off the wrong
amount of bedrooms or baths, an incorrect lot size or home square footage are all things
that could throw off an appraisal.
It would also be important to check the comparative sales data that the appraiser used.
Keep in mind that not every appraiser is a local expert. In fact often times real estate
agents may know a particular area far better than an appraiser would.
In real estate location can play a significant role in valuing property. It is possible that one
neighborhood could command an increase in value over an identical home located
somewhere else close by. These are the kind of things that should be checked when an
appraisal comes in low.
What happens when there are no errors?
When you have come to the conclusion that there are no mistakes in the appraiser’s
report and everything looks as it should you can still challenge the appraisal. Be
prepared to back up why you feel the appraiser is in error on the value indicated. You will
more than likely need to provide data that substantiates why the value is incorrect.
Appraisal challenges are not easy and you certainly don’t always win. In fact most of the
time you don’t.
What can you do if the appraisal challenge fails?
There are essentially four options if the challenge of value fails. They are as follows:
Ask f or a new appraisal. You can ask the lender to order an appraisal f rom a dif f erent
company. This could certainly be met with resistance and the lender could f lat out just say no.
While not the best option f or the seller, the price could be reduced to the appraised value and
the sale could move f orward.
The buyer could increase the amount of money they put down. If the seller is digging in their
heals and won’t budge the buyer could increase their down payment to make up the dif f erence
in the appraised value.
The f ourth option is actually a combination of the last two options. This is an option that I
have personally seen work on a f ew occasions. Like anything else in lif e the buyer and seller
compromise with the seller reducing the price and the buyer coming up with an additional
amount of f unds. In this scenario everyone contributes and the sale goes on as planned!”
The above points are excellent advice f rom Bill Gassett.
What is the true value of a home?
Appraisal’s are not the ultimate judgment of a home’s value. A home’s true value is what a “qualif ied”
buyer will pay f or it.
Several years ago, we listed a single story home in a nice gated community in Southern Highlands. It
was an estate sale with the estate’s attorney calling the shots f or the sellers. List price was $300K.
It went into contract f or $299K. The appraisal came in f or $272K.
The appraisal was based on f oreclosures and short sales that were not as upgraded as our listing.
The buyer ref used to pay more than the appraised value. The deal cancelled. A month or so later,
we had three of f ers on the home. All three were in the $290s. It SOLD to the cash buyer who paid
$295K. Three other buyers were willing to pay more than the appraised value. Appraisals are not
We’ve also seen them go in the other direction. One of our buyers went into contract on a home in
Spanish Trails f or $470K. The buyer was skeptical about the appraisal and insisted that if it didn’t
appraise he would not pay above the appraised value. The appraisal came in at $480K. Our buyer
thought it was wonderf ul to buy it f or less than the appraised value. Since he had paid f or the
appraisal, we were not obligated to share the appraisal with the sellers.
Your best option is to work with an experienced Realtor who knows how to help you avoid appraisal
issues. If they do arise, an experienced agent can be your best resource.
Debbie Drummond has over ten years experience in the Las Vegas Real Estate Market. If you’re
buying or selling a Las Vegas home, call (702)354-6900 or email Debbie@LVHomePro.com. We’ll be
happy to assist you in your move.