What to Do When Your Appraisal Comes in Low

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Published November 06, 2012

| Zillow

Whether you are buying or selling, waiting for an appraisal to come back can be a nerve-racking process, especially in an economy where home values are not what they used to be, despite the perceived value of a home. Because there are great deals out there and prices are increasing, buyers and sellers need to make quick decisions when the appraisal doesn’t make the cut, and it’s important to be prepared in advance for this scenario.

With this in mind, here are the three main steps to take when the appraisal comes in low:

Read the report for accuracy

Appraisal reports can be long, complicated documents, but they can be very revealing if you take the time to read them thoroughly. Make a note of anything that looks off, and verify that the information is correct, not only for the property itself but also for the comparables. Confirm that ALL comps are accounted for — some may not be listed on the MLS, and your real estate agent will have to research. Your agent will work with the buyer’s mortgage professional to ensure the information is relayed to the appraiser.

While there is no guarantee that the report will change, it certainly helps to clarify any errors and understand why an appraisal came in low. Appraisals also point out if there are any secrets lurking within the property’s walls, such as unpermitted additions that add square footage but cannot contribute toward the property’s value. For this reason it’s important that sellers are honest and upfront from the beginning and that buyers do their research before making an offer.

Renegotiate

Just because the appraisal is low doesn’t mean the sale will not close. However, in a low-inventory market, sellers may not want to conduct a second appraisal, which means that buyers and sellers have to decide if they want to work together to seal the deal — whether the seller adjusts the price to the appraised value or the buyer and seller renegotiate a new price. You’ve worked together this far, and it may have taken you both some time to get to this point. Keep in mind that you both have something to lose by not moving forward after investing time and money in the purchase. If a compromise can be made, it most likely will be. On the flip side, if the property is in demand, the seller may opt out of negotiating down as they may want to take a chance on someone else paying the difference or having a cash buyer.

Show them the money

While adjusting the price up or down may not feel good for the buyer or the seller, it may be the smart move, depending on your situation. For buyers, if the long-term value is there and the home is the “love of your life,” it will truly benefit you in the end. For sellers, if you need to make the sale and are running out of time, a compromise may be essential. Buyers may also have to spend even more because a decrease in equity could cause you to fall below the lender’s required down-payment threshold, requiring the purchase of private mortgage insurance.

The main question to ask yourself … is it really worth it?

Read More From Zillow:

What to Expect When You’re Inspecting
5 Tips for the Final Walk-Through
About to Buy a New Home? Don’t Show These People

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