What To Do When Your Home Appraisal is Low

Posted by Jeff Aughey on Monday, May 20th, 2013 at 2:27pm.

What to do when your appraisal comes in low

What is the Appraisal?

An appraisal an evaluation of the a property's financial value in the current market. It is required for all properties purchased by people who are using financing/loan services. Before 2008, the lender could select the appraiser which sometimes led to problems with objectivity. Today, the lender no longer has direct contact with the appraiser and the process is much more objective.

Why Your Appraisal Is Low?

During the current environment of rapid home appreciation -- due to low inventory and high demand -- the past sales used to figure home values aren't in great enough supply to support the constant, positive changes in the market in the Alpharetta, Johns Creek and Forsyth County areas. This may result in a lower appraisal for your home than the current sales patterns in this part of Georgia may indicate.

Why Is a Low Appraisal a Problem?

In most purchase and sales agreements, the contract will be contingent upon the property appraising for the sales price or better.  If your property is assessed for less than your sales price, your buyer may not be able to secure financing.  There are three options at this point, the purchaser can pay the difference in the form of extra down payment, the seller can reduce the sales price by that amount, or a negotiation could be agreed to between the buyer and the seller to find some middle ground on the difference. The buyer will often propose that the sales price be lowered to the appraisal amount. If the seller is unwilling to do so, and an agreement cannot be reached, the contract can often be cancelled by the buyer.

What You Can Do About a Low Appraisal

As noted above:
  1. A buyer can accept the appraisal and make up the difference in cash in the form of a larger down payment.
  2. The buyer may ask the seller to reduce their sales price by the full amount and cancel the agreement if they refuse.
  3. A buyer may recognize the fluid nature of the current market and ask the seller to meet them in the middle by reducing their price while the buyer puts up some additional money for down payment.
Another option is to review the appraisal to make sure it was done properly. The appraiser may not be familiar with the area or the most recent sales prices of similar homes. Or, there may be errors. The underwriter may request that the appraiser re-evaluate in cases where there are errors or oversights. Recently, I had an appraisal that had errors. Two of the three sales used to determine the price were nearly a year old and one of the properties was quite dissimilar. Because the market has changed so dramatically in the past few months, this was a case that needed re-evaluation. If you have questions about appraisals and how to handle low appraisals in Fulton and Forsyth Counties, call me to discuss your particular situation. I may be able to help.

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