What happens when you are selling your home or buying a home and the appraisal comes in low?

What happens when your appraisal comes in low?

There are several options buyers and sellers have when their appraisal comes in low.

Kill the deal, return the buyer’s earnest money and re-list the house to find a new buyer. This is the last course of action.

This is my least favorite option but sometimes it can be necessary.

• Typically this is used when you know that the appraisal is incorrect or the buyer is refusing to or simply cannot negotiate.
• I have also used this option when an FHA or VA appraisal comes back low or when the VA or FHA appraiser demands unreasonable repairs be made to the property. For some older homes and some homes that have deferred maintenance passing a VA or FHA appraisal can be difficult. FHA appraisal guidelines.
• You need to know in advance if the property can be purchased using a conventional loan or of course CASH is KING.
• FHA and VA appraisals stick with the property for up to 6 months. This is the reason behind re-listing the house and asking for Conventional or cash buyers. If you are going to go this route you need to be confident that the appraisal was incorrect and that a new appraiser will have access to comps that support your higher price.

Occasionally with FHA and VA loans the appraisers will ask for items to be corrected or fixed on the property before closing. If the seller is unwilling or unable to make the corrections required for an FHA or VA loan it might be time to re-ilist and only accept Conventional or Cash buyers.

FHA and VA appraisals are given case #’s. These case numbers stay with the property for 6 months and can be transferred between lenders but that is a different post….

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Buyer and Seller negotiate and decide how to proceed when the appraisal comes in low.

Both parties need to be motivated for this to work. This can be beneficial to both buyer and seller in a good market situation where prices are climbing and the seller needs to move. If the buyer loves the house, has available cash and doesn’t want to keep shopping this option can work well. It saves time for all involved and time is money.

Here is an example of when an appraisal comes in low: A house appraises for $10,000 under contract price. This could simply be negotiated by the buyer bringing in an extra $5,000 to closing and the seller’s dropping the sale price by $5,000. It can be that easy but sometimes there are other moving parts like changing the closing date, seller adding extra inclusions or buyer deleting items they have asked to be included. Every deal is different and so are the particulars when appraisals come in low.

when appraisals come in low

Fight or dispute the appraisal when your appraisal comes in low. Not very difficult if you have solid comps.

I just had this happen and believe or not I won the dispute over the low appraisal. It is rare but an appraisal can be disputed and you can win.

Here’s the story…I was the listing agent and we had the home listed for $530,000. We received an offer for $530,000 within 4 hours of listing the home for sale. The appraisal came back $15,000 under contract price at $515,000. Once we got our hands on the appraisal it was obvious that there were mistakes. The appraisal was missing one of the fireplaces, the total room count was incorrect and he stated the house was average or not upgraded compared to the comps. This house had over $100,000 in upgrades and it was obvious in every aspect of the home.

The seller, buyer and buyer’s agent all agreed that the appraisal was faulty so we decided to dispute the appraisal. It does help when all parties agree that the appraisal needs to be reviewed. When the appraiser reviewed his original appraisal,  made the necessary corrections, our value was not surprisingly $530,000 per the comps. However, he did NOT make changes to the bottomline. This drew a red flag from the underwriter and the underwriter tossed the appraisal. A day later the underwriter ordered a NEW appraisal. Of course once we received the new appraisal the home appraised at the contract price of $530,000. This was only possibly because all parties cooperated.

Later we found out that the appraiser admitted that he was on his way out of town when he first appraised the property so he basically rushed his work and submitted a substandard appraisal. I was also told from someone that spoke to the appraiser that he did make the changes to the adjustments when he reviewed the appraisal but “forgot” to change the bottomline appraised value.

This was a huge mess and wasted 2 weeks of the buyer’s and seller’s time.

Lower the price and sell it to the buyer at the appraised value. Easiest option but I only suggest this for sellers in a rush or if you know you don’t have real comps to support your listing price.

This is by far the quickest and easiest solution and can sometimes ease a seller’s mind. How? Well,  it allows a seller to know that in the current market conditions they sold the home for the absolute highest possible sales price. They sold it for the appraised value.

It’s not smart to list your home for sale too far above the true comparable homes that support the property’s real value. In some cases it is perfectly fine to do this but that is another topic. Comps are only good for 6 months from the time they sell. So if you see a perfect comp that sold for a really nice price you need to get your home sold before that comp passes the 6 month old mark.

I’m 100% confident that there are more than just these options for when your appraisal comes in low. I’m showing your these as an example of the most commonly used options in our South Metro Denver, Colorado real estate market.

If you have questions or need HELP call me at 303-941-4663 or email me. Steven Beam, Realtor, CRS.