Home appraisals are a necessary part of the home buying, selling, or refinancing process. In a purchase and sale transaction, an appraisal is used to determine whether the home’s contract price is appropriate. This protects the buyer from overpaying for a property and protects the lender because they want to be certain the home is worth its purchase price in case of mortgage default. In a refinance situation, a home appraisal is critical for qualification and pricing purposes.
Sometimes, during the appraisal process, a lower-than-expected valuation may occur and this can be a shock. A low appraisal can hurt the chances of getting a new home loan or refinancing.
Luckily low home appraisals are not a common occurrence, but they can happen. According to Fannie Mae, home appraisals come in below contract only about 8% of the time. Some of the most common reasons for a low appraisal are:
- declining or rising market values
- overpricing by the seller
- foreclosures or short sales in the neighborhood
- artificially inflated prices
- inexperienced appraiser
The market and the appraiser’s local knowledge can have the largest impact on the property valuation. The majority of the time, the valuation is out of the hands of the seller, buyer, or lenders due to fluctuating market trends and outside influences.
As a seller or someone trying to refinance, there are a few things that can be done to help get the highest valuation out of the property. The lender most likely has done their due diligence when it comes to selecting an appraiser as a lot is at stake for them regarding the value of the collateral supporting the loan. This means that there might be little said in who conducts the appraisal, however, it can be requested that an appraiser is chosen that is familiar with the area in which the property is located.
When the appraiser arrives at the property, provide them with copies of the comparables used to decide the listing price. Also, make sure to have available information regarding any major improvements or renovations that have been done to the property. Even receipts can be useful to show the appraiser. Lastly, ensure the condition of the home is clean, tidy, and well-maintained. These little steps can make a big difference.
If a low home appraisal does occur, there is no need for panic as there are several options for how to handle this situation.
- Review the appraisal report for errors
Obtain a copy of the appraisal report so that it can be reviewed in detail. Look for items that might lead to a lower valuation such as the number of bedrooms or bathrooms.
- Check the comparable sales
The appraisal report will list the homes which were used by the appraiser as comparable sales. These recent home sales help the appraiser gauge the value of the property, so it is good to make sure these sales are truly comparable.
- Look into the school districts
Homes in better school districts are more desirable and generally priced higher than their counterparts. Make sure that all properties listed at comparables in the report share the same school district.
- Consider appealing the appraisal
Once a review of the appraisal is done and supporting documentation has been collected, this can be presented to the appraiser to reconsider their determination.
- Get a second appraisal
If the appraiser does not reconsider their original valuation of the property, getting a second opinion might be the way to go. This should only be done, however, if it is believed that the original appraisal is grossly incorrect.
If you are in need of an appraisal, look no further. Our team of experienced and trustworthy appraisers will provide a detailed report to you quickly and efficiently. Contact Appraisals Unlimited today to start the process or order an appraisal online!
If you have an immediate need for a commercial or residential real estate appraisal, fill out the brief form below or order an appraisal online. We are the most trusted appraisal company in New England and New Jersey, performing more than 10,000 appraisals every year!
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