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3 Things You Can Do When an Appraisal Value Is Too Low

East Coast Appraisal Service • Jun 10, 2022

Real estate transactions typically involve hundreds of thousands of dollars. Most buyers opt to finance the purchase of a home through a mortgage lender. Lenders will usually require an appraisal to determine the value of the property before approving a mortgage loan.

The appraisal process typically goes smoothly, but rapidly increasing property values and extreme competition within the real estate market have complicated the appraisal process in recent years.

It is possible for the appraisal price of a property to be lower than the agreed-upon purchase price between buyer and seller. If you find yourself in this situation, here are three things that you can do to help push the sale of the property forward.

1. Negotiate a Lower Sale Price

It's common for sellers to receive multiple offers that are above their list price when selling a home in today's real estate market. In the event that a seller accepts your offer, but the appraisal value is lower than the offer, your ability to secure a mortgage could be compromised.

Most lenders operate using a loan-to-value (LTV) ratio when offering mortgages to their customers. The LTV is designed to prevent lenders from offering more credit than a property is worth.

Appraisals are based, in part, on recently closed real estate transactions. In a market that is rapidly evolving, recent transactions may not be representative of current market conditions.

You could choose to negotiate a lower purchase price with the seller based on the low appraisal value that the property receives. Most real estate contracts are contingent on a favorable appraisal, so there should be no legal ramifications if you need to renegotiate a lower purchase price in order to meet your lender's LTV ratio demands.

2. Dispute the Appraisal

If you feel that the appraisal value for a property you are interested in purchasing is too low, you have the option to dispute the appraisal with your lender.
The individual paying for an appraisal (which is typically the buyer in real estate transactions) is entitled to a copy of all appraisal paperwork according to the Bureau of Consumer Financial Protection.

Request a copy of the appraisal from your lender, then partner with your real estate agent to look for any errors. Appraisers can miscalculate square footage or misstate the number of bedrooms and bathrooms, which would cause the appraisal to be lower than your agreed-upon purchase price.

Gather documentation for the most recent comparable sales in the neighborhood, and be sure that you create a list of every improvement and upgrade made to the home in recent years.

Armed with this information, you can request a second appraisal that will hopefully address any errors and result in an appraisal value that meets or exceeds the purchase price you have agreed upon with the seller.

3. Increase Your Down Payment

With competition for quality properties so high, buyers don't want to lose out on the home they have worked hard to negotiate for. A low appraisal value doesn't necessarily mean that you have to walk away from a home you have fallen in love with.

A mortgage lender will be able to extend a mortgage up to the appraisal value. The difference between this loan amount and the purchase price you have agreed upon with the seller can be erased by increasing your down payment.

Liquidate some assets to increase the amount of money you can dedicate toward a down payment. A higher down payment will ensure that a low appraisal value doesn't cause you to lose a lucrative real estate deal.

Navigating the appraisal process can be a challenge. Let East Coast Appraisal Service help the next time you need an appraisal.

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