When purchasing a home, your mortgage lender will almost always order an appraisal to verify the value of the property. The appraisal will ensure the home is worth the value to be able to provide financing options. The lender won’t lend more than the appraised value. Doing so would cause the buyer to be underwater or owing more than what the home is worth.

A low appraisal means the home’s appraised value is less than the agreed-upon offer price. Low appraisals don’t occur too often, but it’s always best to be prepared.

Why would a home be appraised low?mortgage loan

Appraisers are not looking for things to fix, they are concerned with the condition of the home. For example, here are a few specifics that determine the value of your home:

  • Condition of the home
  • Upgrades and/or repairs – the improvements that have been done will be calculated as a positive, while repairs impact the value.
  • Comparing similar homes – this looks a lot like a competitive analysis of recent sales that are similar to the one you are looking to purchase. This includes the local housing market and how long homes are taking to sell.
  • Location, location, location – the appraiser will look into school districts and any zoning restrictions, lot size and the proximity to metro areas or industrial areas.

What are your options?

There are options to keep the deal alive if the appraisal comes back lower than expected. Here’s a few to bring up with the seller or your real estate agent.

  1. Review a copy of the appraisal. After the appraisal comes in, ask to review a copy of it. You have the right to do so, as it’ll help you understand what caused the low appraisal and help you decide whether to request an appraisal rebuttal.
  2. Negotiate the price. Remember that a low appraisal isn’t something the seller wants to happen. If it does, talk with them about negotiating the price. Your real estate agent will be valuable here, as they will advocate for you and find a solution that benefits all parties.
  3. Pay the difference. On the other hand, you can pay the difference out-of-pocket if you can afford to do so.
  4. Walk away. If it comes down to it, it’s ok to walk away—especially if you have an appraisal contingency. This contingency allows you to walk away from the sale without questions and without losing your earnest money deposit.

When making a financial decision this large, it’s best to check in with your local lender to help you understand the current market. We’re here to help!

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.