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What To Do If Appraisal Comes Back Low

Who To Call For Your Appraisal

What To Do When The Appraisal Comes In Low?

If you need to schedule an appraisal for your home or if you want a second opinion on the value of the property, give the experts at Coakley Realty a call. Our fully trained and experienced appraisers have been providing exceptional service to the residents of Maryland, Virginia, and Washington, DC since 1989. Let us put our years of experience to work for youcall today!

Contact us onlineor by phone at 301-340-8700 to request your appraisal!

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What Is A Home Appraisal

A home appraisal is an unbiased assessment of a property thats performed by an outside professional whos been trained to determine home values. During the appraisal process, an appraiser will observe a homes physical condition as well as its features. These include:

  • Number of bedrooms and bathrooms.
  • Amount of square footage.
  • Exterior features such as , swimming pools, and patios.
  • Garage/parking spaces.
  • Total lot size.

Appraisers also look at comparable home values in the area to determine a propertys value. As such, a home in pristine condition that might be valued at $400,000 in one housing market may only appraise for $300,000 elsewhere based on location.

Keep in mind that a home appraisal is not the same thing as a home inspection. The purpose of a home inspection is to check for flaws or issues with a home thats under contract to be purchased, but thats also something you, as a buyer, pay for yourself, and its your decision whether to use the information from your inspection to renegotiate a purchase price or even back out of a deal. Your mortgage lender, however, doesnt need to see the results of your home inspection to close on your home loan.

Why Home Appraisals Are Important

Appraisals are important to mortgage lenders because they ensure that they do not approve a loan for a borrower for more money than the property is worth, says Al Graham, regional manager, Georgia, Alabama and Florida, for Silverton Mortgage. The appraisal also protects the buyer from overpaying for a property.

Lenders also use home appraisals to help borrowers determine the current value of properties they want to purchase and how much they can reasonably spend, says Rose Sklar of The Sklar Team with Coldwell Banker Realty in Weston, Florida.

Homeowners also seek appraisals when refinancing their mortgage or obtaining a home equity loan or a home equity line of credit.

Generally, the loan-to-value ratio is determined by the lower of the appraised value or the purchase price for a purchase transaction, says Matt Hackett, operations manager of Equity Now, a New York-based direct mortgage lender. For refinancing, the loan-to-value is determined by the appraised value. This ratio is very important from both a qualification and pricing standpoint.

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Heres Why Home Appraisals Come In Low

All these variables leave plenty of room for an appraisal to come in low.

For instance, if the market moves faster than normal, comparative sales, or comps, often dont keep pace with present prices. That also goes for a sluggish market, where a lack of quality comps make it tricky to nail down the propertys market value.

Usually, the market moves before the appraisers do, says New York City real estate agent Dylan Hoffman, who ranks in the top 100 brokers nationwide. Its the brokers that set the market, not the banks. Were always pushing the market up, up, higher, higher. We have to become educators to the banks to let them know what the markets doing.

Your appraisal might also suffer from bad or missed comps. Perhaps a neighboring property was rundown when it was sold but the new owners have rehabilitated itor public records havent yet recorded a recent sale of a property similar to yours. Foreclosures, bank-owned properties, private sales to relatives, and distressed properties in your area also can skew the comps.

In terms of pricing, if homes in your area tend to sell for, say, about $500,000where youve set your asking priceand one of the comps that an appraiser has selected sold for $380,000, the whole average drops to $450,000.

Appraisers also have a high workload, the study says. Nearly 35% of respondents performed more than 300 appraisals in the prior 12-month period, an increase over the previous 12 months.

What If Your Refinance Appraisal Comes In Low

Witz Real Estate: Options When Your Appraisal Comes In Low

Unless youre getting a Streamline Refinance through the FHA, VA, or USDA, youll likely need a new appraisal to qualify for a refinance loan.

If the appraisal shows the current market value of your home is lower than expected, your new loan may not be large enough to accomplish all your goals.

Your options include:

  • Appealing the appraisal
  • Finding another lender who uses a different appraiser
  • Doing a cashin refinance, which involves bringing cash to closing to make up the difference between loan amount and the property value
  • Taking out less cash than youd planned
  • Cancelling the refi until you gain more equity

Keep in mind that cancelling the refinance wont cancel the appraisal fee youve already incurred. Likewise, ordering a new appraisal is no guarantee of a higher value, and youll be on the hook for two appraisal bills.

Plus, the lender may not allow an additional appraisal.

Why does the appraised value affect your refinance?

Your appraisal affects your refinance loan because it helps measure the amount of equity in your home.

Home equity is your homes appraised value minus your mortgage debt.

For example, if you owe $150,000 on your current home loan and the appraisal process values your home at $225,000, you have $75,000 in equity.

If a different appraiser valued your home at $250,000, youd have $100,000 in equity.

Human versus automated appraisals

Many refinance lenders today are going with automated appraisals to save time and money.

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Can A Seller Back Out After A Low Home Appraisal

Only the buyer can back out of a contract if the homes appraisal comes in too low. This also is dependent on the buyer having an appraisal clause in their purchase agreement. This language is included in a purchase contract for the sole purpose of giving the buyer the ability to exit the contract if the home fails to appraise at the contract price.

As the seller, you are more than welcome to re-list the property and sell it to another interested party. The only step your realtor has to take is canceling the contract, ensuring the buyer gets any deposits back.

How To Negotiate With The Seller After A Low Appraisal

Any home that is financed by a mortgage requires an appraisal. In a competitive market, a house can bring in multiple offers. While this may be good news for the seller, it can be tough for the buyer.

So, what happens when the appraisal comes at less than the price you agreed upon? The best strategy is to negotiate with the seller to meet in the middle. If the difference between the appraisal value and sales price is lower, the seller can agree to close the sale. But for this solution to apply, there must be a willingness from both parties.

You can also challenge the low home appraisal. While this may look like a long shot, you can request a second appraisal. The headache with this option is that the final decision ends up in the hands of the lender. Another option is to get an appraisal contingency added to the home buying contract.

If the lender doesnt have a reason to doubt the second appraisal, they will finance the mortgage. Ideally, your agent will negotiate for the price.

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Negotiate With The Seller

If youre lucky, you and the seller will both budge a little.

You might go back to the sellers and ask them to reduce the price or split the difference, says Peter Grabel, managing director of Luxury Mortgage in Stamford, CT. The seller is under no obligation to do so, but they may prefer to do this rather than take a chance of losing you as a buyer, and starting over again. It is likely that another buyer will have the same issue, so the seller might be better off renegotiating with you unless they have other offers.

Sellers might be more willing to cooperate, especially if the Federal Housing Administration is involved. Lenders often require the use of their own FHA-approved appraiser, and these appraisals are locked in for six months.

The seller could be forced to take a poor appraisal or wait it out for a buyer with a different loan, explains Joshua Jarvis of Jarvis Team Real Estate in Duluth, GA.

Jeff Knox, broker and owner of Dallas-area real estate firm Knox & Associates, says this is the most common outcome in his area.

Of all possible outcomes, this is what happens most frequently, he says. While the seller will usually be upset about the low appraisal value, most reasonable sellers eventually come to terms with the fact that any other appraisal values by potential future buyers will most likely come in at about the same value.

How To Negotiate With A Seller After Low Appraisal

What to Do if an Appraisal Comes in Low

Sellers dont want the sale of their home to fall through, and they know that if a home appraises low it will be difficult to get the price theyre asking. On top of that, if theres an appraisal contingency in the purchase agreement, a buyer can back out of the sale no questions asked without losing their earnest money deposit.

In this situation, negotiating is the best option for the buyer and seller. Here are a couple things you can do to start negotiations:

  • Check with your lender to see if a second appraisal can be requested. Note: Youll need to submit additional information to show the first appraisal was deficient.
  • Ask the seller what they can do for you
  • Talk to your real estate agent
  • Do your research and know your leverage

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What Steps Should A Buyer Take After A Low Home Appraisal

When you are buying a home, and the appraisal comes in lower, dont lose hope. Have your agent reach out to the listing agent and begin negotiations. Often, the listing agent will ask the sellers to lower the price to that of the appraisal. Some sellers will oblige while others refuse to budge, especially if the appraisal price is below the asking price. The best thing a buyer can do, especially if they really want the home, is to meet the seller in the middle.

How A Low Appraisal Affects Buyers

As an investor, you can still decide to buy the property even if the appraisal is lower than the purchase price. For example, you may believe the long-term true value of the property is greater than the appraisal due to factors such as a soon-to-be improving economy or strong future population growth.

However, if youre financing, you may need to put more money down if the appraisal comes in low. Thats because the lender will calculate the loan-to-value based on the appraisal value and not the purchase price.

Lets say you and your lender have agreed to a conservative LTV of 75%, with you making a down payment of 25%. Your purchase price on a single-family house is $100,000 but the appraisal came in low at only $80,000. If you decide to proceed with the purchase, youll need to come up with more money than anticipated:

  • Purchase price = $100,000 x 25% down payment = $25,000 total cash down
  • Appraised price = $80,000 x 25% down payment = $20,000 + $20,000 difference between purchase and appraised price = $40,000 total cash down

If you dont want to pay more for the property than the appraised value, there are three approaches you can take as a buyer:

  • Negotiate with the seller for a lower offer price.
  • Buyer and seller mutually agree to extend the contract appraisal contingency clause to allow time for second appraisal.
  • Buyer unilaterally cancels the contract using the appraisal contingency clause, and receives a full refund of the earnest money.
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    Can You Get A Redo On Your Appraisal

    Homes dont often appraise for less than their purchase price especially in a rising home value environment. However, it can happen, so its best to know your options.

    In some cases, you may want to try a different lender to get a second opinion on the homes value especially if you have data showing the first appraisal was inaccurate.

    You can compare lenders and rates at the link below.

    How Does A Low Appraisal Happen

    Donald Payne: What to Do When Your Appraisal Comes Back ...

    Home appraisals are an unavoidable part of the home selling process, and are valuable to the buyer and lender. For the lender, an appraisal is conducted to assess the actual value of the home, and to ensure that this is equal to the loan amount that the borrower is asking for. A buyer uses the appraisal to avoid paying too much for the home.

    Home appraisals can also be beneficial for a homeowner as well. You may need to have your property appraised when refinancing your mortgage or applying for a second mortgage. The appraisal is important during these processes for qualification and pricing purposes.

    During the appraisal process, a lower-than-expected valuation might happen. This can be a real shock to sellers whod been hoping for a specific price on their home. Some of the most common reasons for a lower-than-expected appraisal are:

    • The property is not well-maintained
    • The underwriter valuated the property incorrectly
    • Foreclosures or short sales in the neighborhood

    The market and the appraisers understanding of local influences can have the largest impact on the property valuation. Understand that often the valuation is out of your hands due to fluctuating market trends and outside influences.

    Youll want to work with your appraiser and real estate agent to list your house to balance between the most accurate price and the profit you desire.

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    Increase Your Down Payment

    In a home purchase situation, another way to salvage a mortgage when youre dealing with a low appraisal is to increase your down payment. Say you were looking to put down $40,000 on a $200,000 home whose stated worth is just $150,000. If your seller won’t come down on their selling price, or you know theres no point in negotiating because you were actually engaged in a bidding war prior to signing your contract, you could increase your down payment enough to avoid borrowing more than what your home is deemed to be worth.

    What To Do If Your Home Appraisal Comes Back Low

    A low home appraisal could hurt your chances of getting a mortgage. Heres what to do if it happens to you.

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    If you’re in the market for a new home, chances are, you’re not planning to buy it outright. Rather, you’re probably planning to take out a mortgage and pay off that home over many years.

    But there are certain requirements that must be fulfilled before your home loan is complete, and one of them is your home appraisal. And if that appraisal comes in lower than expected, it could kill your chances of getting to close on your mortgage loan.

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    Negotiate A New Purchase Price

    There may be a reason why a home appraisal comes back lower than you expect it to. It could be that certain features are outdated or that home values in the area have been on a decline in recent years.

    If youre trying to buy a home and you agree with its low appraisal — meaning, you understand why the value of the home youre looking to buy is coming in lower than initially expected — then it pays to try negotiating a lower sale price with your seller. Going back to our example: If the $200,000 home you’re looking to buy comes in at $150,000, you can try seeing if your seller will drop his or her contract price substantially. Your seller may not agree to $150,000, but perhaps he or she would be willing to meet you in the middle, and if youre in love with the home, you might agree to just pay the difference yourself rather than borrow it.

    Of course, if youre looking to refinance and you agree with your low appraisal, you may need to change the loan amount youre asking for so that youre not borrowing more than what your appraisal calls for.

    What Is An Appraisal On A Home

    What to Do if an Appraisal Comes in Low | Short Appraisal Options

    An appraisal is a professional report that helps gauge a homes value. Any homeowner can get a home appraisal at any time.

    For example, if a homeowner is refinancing their mortgage, an appraisal is usually required. But the most common time an appraisal is performed is when youre selling. If the person buying your home is financing the purchase, their lender orders an appraisal to ensure that the house is worth the amount the bank is agreeing to finance. Its one of the final steps in the home-buying process, and its an important factor to the sale going through.

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    What Appraisers Look For And How To Prepare Your Home

    InvestopediaForbes AdvisorThe Motley Fool, CredibleInsider

    Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.

    Marcus Reeves is a writer, publisher, and journalist whose business and pop culture writings have appeared in several prominent publications, including The New York Times, The Washington Post, Rolling Stone, and the San Francisco Chronicle. He is an adjunct instructor of writing at New York University.

    When you consider refinancing your mortgage, a lot will hinge on the appraisal. If your homes value is so low that youre underwater, then you cant refinance. If your appraisal value puts your home equity at less than 20%, then youll get stuck paying for private mortgage insurance or having to bring some cash to the table to do a cash-in refinance. Whats more, you might not get the lowest interest rate available, as lenders consider borrowers with less equity to be riskier.

    If youre thinking about refinancing, you should understand the appraisals essential role in the process and how you can prepare your home, which is key to achieving a successful refinance.

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