How Buyers can Challenge a Low Home Appraisal

So, you’ve found the right house, put in an offer and nervously waited. Elated to hear it’s been accepted by the seller, you get through the home inspection. No big issues pop-up, so you’re on your way to the closing table. You’ve been informed the seller plans to move out a couple of days before settling and everything is going according to plan. Then, the home appraisal comes in and it’s no less than heartbreaking. The house appraised for less than the agreed selling price. But don’t despair just yet because there are ways buyers can challenge a low home appraisal.

How Buyers can Challenge a Low Home Appraisal

It’s important to note, there are several elements to a home appraisal. The appraiser takes many factors into account. These include, but are not limited to: the size, location, landscaping, age, overall condition, and comparable properties. However, this doesn’t mean every appraisal is spot on. It’s fairly common for a home appraisal to be incorrect. After all, appraisers can miss several things. As a result, the valuation isn’t in-line with the agreed selling price.

“You should note that the appraisal business is not scientific. At best, it is a sophisticated art. While appraisers certainly use such benchmarks as comparable sales in the area, square footage, replacement value and other similar concepts, the bottom line in my opinion is that appraising a house is a very subjective exercise. The best test of market value still is what a ready, willing and able buyer will pay a ready, willing and able seller.” —Realty Times

For instance, the appraiser’s comparable properties might need considerable work. Or, the comparables contain distressed properties, such as foreclosures and short sales, which sold at a substantial discount. Even if neither of these scenarios apply, there is always the real possibility the local real estate market is experiencing a changing trend. This makes it difficult to place an accurate value on a home. So, here’s how buyers can challenge a low home appraisal to save the deal:

  • Appeal the appraisal. Many buyers aren’t familiar with the appraisal process. But a low appraisal doesn’t have to outright kill the deal. You can file a “rebuttal of value,” which is simply an appeal of the valuation. It’s important to note, this is a team effort and all parties involved will have to get onboard. What you’ll do is identify true comparables (without including distressed properties or special circumstances, like estate homes). Then, you’ll have solid evidence to support your appeal.
  • Have another appraisal conducted. Although the buyer technically pays for the appraisal (it’s included in the closing costs), it might be worthwhile to order another valuation. You can ask the seller and the agents if they’ll help pay for the second appraisal. If you and the seller really believe the house is worth the agreed purchase price, this is a viable strategy. But, if there’s any doubt, it’s probably not worth the extra expense.
  • Try to negotiate with the home seller. A low appraisal doesn’t mean you won’t get financing, it just means the lender will not lend more than the appraisal amount. So, you can either pay the difference in cash to keep the deal on track. Or, you can negotiate with the seller. If successful, the seller will lower the purchase price and you can continue towards closing.
  • Move on and continue your house hunt. If none of the above suggestions are feasible, you can always walk away from the deal. This might not be your favorite option, but if another appraisal comes in low and the seller won’t lower the price, you won’t qualify for the amount of the purchase price.

If you are considering buying or selling a house in Orlando’s Hunter’s Creek, or another community, contact us for the latest market information. We are local and experienced in all facets of residential real estate, here to help you, when you need it.