The appraisal is one of the last steps in the home buying process. In order for the home sale to continue smoothly, the value of the appraisal should be at or higher than the selling price of the home. Sometimes, this number comes in low. Since a bank will not lend the buyer more money than what the appraisal values the home at, what is next?
What is an appraisal?
An appraisal is a valuation of a home’s worth completed by an independent third party appraiser for the bank. Appraisals are required by mortgage companies to ensure that they are not lending out more money than what the market value of the home. Appraisals happen a few weeks before the closing date.
An appraiser will contact the seller’s Locust Grove Realtor ® to set up a day and time for the appraiser to look at the home. It usually takes anywhere from one to two weeks for the appraiser to share the report.
Why would an appraisal be low?
There are various scenarios as to why an appraisal could be low.
The sellers may have accepted an offer higher than market value. For example, if the buyer of the home offers over the asking price and this offer is accepted, then the appraisal may come in closer to the listing price. Why? As a Locust Grove Realtor ®, I complete a comparative market analysis of the current market value of a house as part of my method to determine a home price. If an offer comes in that is slightly over market value, then the appraisal won’t match. This is why it is important to rely on a local Realtor® to determine the market value of your home and not a website algorithm.
The local housing market has changed. A low appraisal doesn’t always mean that your real estate agent has done a poor job pricing your home. If a home has been on the market for an extended period of time or if your housing market is in a sudden upswing, then the listing price may be different than the current market value. When an appraiser looks at comparable homes that have just sold, the appraiser may find that the home’s value is different than when originally listed.
Finally, an appraiser can miss features of the home. I find it important as a Locust Grove Realtor ® to attend all appraisals. This way I can make sure that the appraiser is aware of all upgrades that have been done to the home that can add value. Sometimes, these upgrades (like adding a bathroom or finishing a basement) don’t appear instantly in tax records that appraisers use.
What do I do as a seller if the appraisal is low?
The first thing that I do as your Locust Grove Realtor ®, is check the appraiser’s report for any errors. Is the square feet of the home accurate? Did the appraiser remember that the basement is finished? If there is an error that needs to be corrected, your Realtor® will work with all parties to correct the error.
If everything looks accurate in the report, sellers have a few options.
You can challenge the appraisal. If you feel that the appraisal is completely out of line with the value of the home and have comparables that support this, you can challenge the appraisal by providing all this documentation to the appraisal company You can also have another appraisal done if you can get the buyers (who pay for the appraisal) to go along with this plan. Since these options can slow the sale of the property and may not result in a change of the home’s value in the appraisal, many sellers opt for other paths to selling the home.
The buyers and sellers can negotiate the selling price. Since a buyer’s mortgage won’t lend them more than what the appraisal says the home is worth, sellers can lower the selling price to be in line with the appraisal. Other times, sellers ask the buyers to bring the difference in cash to the table, or the buyers and sellers can split the difference in the appraisal price and selling price. Your Locust Grove Realtor ® will work with the buyer’s agent to negotiate a compromise.
The buyers can exit the contract. The appraisal contingency clause in the housing contract allows buyers to exit the contract if the seller does not lower their selling price to the appraisal price or if the buyer is not able to fund the difference with cash.
Do low appraisals happen often?
No! While low appraisals can happen, only about eight percent of homes had a low appraisal in 2022 according to Fannie May. When a Locust Grove Realtor ® and seller work together to price a home according to market value, chances are that the appraisal will come in at or above list price. Realtors® will have discussions with their clients if they have any concerns that the appraisal will come back low.
