A home appraisal is a part of every home that is bought with financing. Low appraisals can happen for many reasons, including:
-Artificially inflated values because of multiple offers
-Incorrect evaluation by the underwriter
-An inexperienced appraiser who doesn’t understand influences on value
-Market values rising due to limited inventory
-Appraisers looking at pending sales data from the wrong areas
-Declining market values due to fewer buyers shopping among a larger inventory
-A fallout from an abundance of foreclosures and short sales in a neighborhood
When you have an appraisal that comes in low, you have quite a few options as a buyer. One is making up the difference between the appraised value and the purchase price in cash. A low appraisal doesn’t mean that a lender won’t lend on a property, it just means that they will only lend up to a certain amount based on the ratio agreed in the contract.
At the same time, the seller could lower their price as well. If the home’s value was inflated due to multiple offers, this is often the best solution. It makes the buyer happy and leaves the lender satisfied. The seller could also offer to carry a second mortgage for the difference. This rarely happens, but it’s still an option. Getting a second appraisal is also an option, although there is no guarantee that it will be higher.
If you are buying a home with an FHA loan, you’ll need to ask your lender for a list of approved appraisers. An FHA appraisal will stay with a home for an extended period of time. For conventional loans, you are subject to the rules of the HVCC. If an appraisal comes in on your home from a national appraiser and is low, you have every right to contact the lender and demand that a local appraiser be used.
Finally, you always have the option of canceling the transaction with a low appraisal. If you’ve exhausted all other options, this might be the best course of action.
If you have any questions about low appraisals or anything else relating to real estate, give me a call or send me an email. I look forward to hearing from you soon.