Challenging a Low Appraisal When Buying a Home

Once you’ve found the perfect house and have made an offer, you might think the hardest part is sitting on pins and needles, waiting to hear if the seller accepts.

But once the seller agrees, sometimes you have to go throw additional, unexpected steps, like challenging a low appraisal.

What You Should Do When Challenging a Low Appraisal in the Home Buying Process

An appraisal evaluates the resale value of a house. An appraiser will factor in the houses qualities, such as square footage, size of the lot, and amenities and upgrades. But the biggest issue it takes into consideration is sales of comparable homes in the area – recent sales of houses similar to the one you want to buy. 

Lenders only approve a mortgage amount up to the appraisal value. So, if an appraisal comes back at a value lower than the price of the home, then you’re going to fall short on your loan amount.

If you find yourself in this situation, there are some things you can do when challenging a low appraisal, including:

• Try to renegotiate. A low appraisal can potentially be a good thing for buyers. If the appraisal comes in substantially lower – like more than $10,000 – then the seller might be willing to renegotiate the price. The seller might realize that this could be an ongoing issue with any buyer so they might accept a lower price for the home.
• Pore over every detail of the report. Check for accuracy and make sure the information is correct. If you find any mistakes, point them out to the appraiser. Look at the comps the appraiser used. Are they a good comparison? Your real estate agent might be able to provide comps that are a better reflection of similar homes in the area.
• Challenge the appraisal or ask for a second appraisal. But remember: you need to have a factual basis. It can’t just be a knee-jerk reaction. If you find errors in the report or the comps aren’t relevant (like if they are in a different part of town or there are mistakes like total square footage or square footage of bedrooms), you have the basis for a second appraisal. To get a more accurate appraisal, ask for someone who knows the area extremely well.
• Pay the difference. If you have the cash and you REALLY want the house, then you can dip into your savings to pay the difference. This will also lower your loan amount so your payments will be a little less than they would have otherwise.
• Cancel the deal. Chances are, your contract has a clause that says if the appraisal comes in lower than the price, then the deal can be canceled. You’ll need to examine your options, how much you want the house, and the seller’s position on the low appraisal. 

The best thing to do is to ask the advice of your real estate agent. They’ve likely been in this position before and can help you scrutinize the appraisal report and help you take the best course of action to ultimately land you in that home the seller has agreed to sell you.