From Frustration to Triumph: Conquering Low Appraisals in Real Estate
Everything you need to know about confidently navigating a low appraisal.
Are you worried about your home getting a low appraisal? If so, first know that they are not common—I encounter maybe one or two low appraisals a year at most. Still, it's important for buyers and sellers to understand how appraisals work and be prepared for what to do if they come in low. This is particularly relevant right now because we've shifted to a market with a greater likelihood of appraisal challenges.
Appraisers determine a home’s value by using the most recent sales, but there are two challenges at the moment. First, we have a limited number of sales, so if there are fewer data points and similar homes that have sold in the last three to six months, there is a greater chance of a lower appraisal or not having enough comparable sales to support a higher price. Second, the market conditions have changed rapidly, which makes it difficult to match the current conditions.
When an appraised value is below the sales price and the contract includes an appraisal contingency, there is a set outline of the next steps. Typically, the buyer will ask the seller to reduce the price to the appraised value, or there will be some renegotiation of the sales price.
"It’s important to be prepared by carefully looking at comparable sales."
If there's no appraisal contingency, the buyer will need to work with their lender to restructure their loan terms and figure out how to work with the appraised value. If you're a buyer without an appraisal contingency, know that it's not necessary to bring the difference in cash at settlement. If you have a larger down payment amount, chances are you can restructure your loan terms to avoid bringing in additional cash at closing. However, your monthly payment will likely be slightly higher.
When representing buyers and sellers, I always try to prepare our clients by carefully looking at comparable sales. However, appraisers have their own set of tools and evaluate properties from a different vantage point than real estate agents, so it's impossible to predict the exact outcome. If we're in a situation with limited comparable sales to support our price, we can have more conversations and better prepare for this outcome.
If you want to learn more about how you can confidently navigate low appraisals or need help with your real estate plans, call or email me. I’m always happy to help.