Receiving a low home appraisal can be a disheartening experience for home buyers, especially when they have found their dream home and have already committed emotionally and financially to the purchase. However, it is essential to approach the situation methodically and strategically to navigate through the challenge effectively. Here are some steps home buyers can take if they receive a low home appraisal.
Firstly, understand the appraisal report thoroughly. Appraisals are conducted by licensed professionals to determine the market value of a property. The report includes various factors such as the condition of the property, recent sales of comparable homes, and the neighborhood’s characteristics. Review the report to ensure there are no errors or omissions. Sometimes, mistakes in square footage, the number of bedrooms, or overlooked renovations can lead to an inaccurate appraisal. If you find any discrepancies, it is crucial to address them immediately by providing the appraiser with correct information or additional documentation.
Next, communicate with your real estate agent and lender. Both professionals have extensive experience in dealing with appraisal issues and can over valuable insights and guidance. Your real estate agent can provide comparable sales data that the appraiser may have missed, and your lender might have procedures in place for challenging a low appraisal. Together, you can decide whether it is worth requesting a reconsideration of value. This process involves formally disputing the appraisal by submitting a written request for review, along with supporting evidence such as
additional comparables or corrections to errors in the initial report.
If challenging the appraisal does not yield favorable results, consider negotiating with the seller. A low appraisal means that the lender will base your loan on the appraised value rather than the agreed-upon purchase price, potentially leaving a gap that you must cover out-of-pocket. In this case, having an open and honest conversation with the seller is essential. You can request the seller to lower the purchase price to match the appraised value or meet somewhere in between. Some sellers, especially if motivated, might be willing to adjust the price to avoid jeopardizing the sale.
Additionally, you may explore alternative financing options. If the seller is unwilling to lower the price, and you are still committed to purchasing the home, you can opt to increase your down payment to cover the difference between the loan amount and the purchase price. Another option is to seek a second opinion by ordering a new appraisal from a different lender, though this involves additional costs and does not guarantee a higher valuation.
In some cases, buyers might also consider walking away from the deal. While this is a difficult decision, particularly after investing time and resources into the process, it may be the best course of action if the financial implications are too significant. Ensure you review the contingencies in your purchase agreement, as many contracts include an appraisal contingency that allows buyers to back out without penalty if the appraisal is low.
Finally, learning from the experience is crucial. Low appraisals, while frustrating, over valuable lessons in the home buying process. They underscore the importance of conducting thorough market research, understanding property values, and being prepared for unexpected challenges. By being proactive and informed, future home buyers can better navigate the complexities of real estate transactions.
Receiving a low home appraisal requires patience, diligence, and effective communication. By thoroughly reviewing the appraisal report, seeking professional advice, considering negotiation and alternative financing options, and learning from the experience, home buyers can manage the situation effectively and make informed decisions about their potential purchase.
If you’d like to discuss your real estate options, I’m here to help. Contact me at 914-447-5847.