5 Next Steps When the Appraisal Comes in Too Low

When recently surveyed, over a third of Realtors reported having had one or more home sale contracts fall apart this past year. Autopsies of these dead deals often surface a truly lethal culprit: appraisals that come in below the agreed-upon purchase price.

1. Appeal errors or bad comps to the appraiser. Read the entire appraisal report, cover to cover. See if you spot any errors it’s not at all unheard of for an appraisal report to miss a bedroom or underreport the home’s square footage. The trouble is that what starts out as a clerical error can often result in the application of the wrong “comparables” when it comes time for the appraiser to pick the properties to use as benchmarks of your home’s fair market value.

2. Ask for a second opinion. Particularly in cases of error or bad comps, if the appraiser ignores your request to revise the report, you might need to escalate your request to the lender itself. Here’s where it’s important to be working with an expert agent and mortgage pro with a great reputation; if they believe strongly in your case, they may be able to plead it to the underwriter and request that a second appraisal be done. The idea here is that if the second appraisal backs up your arguments, listing the correct property details or more accurate comparables, the lender is much more likely to exercise its discretion to deem the first one a dud and go with the second opinion.

3.Renegotiate.Low appraisals disappoint everyone around the negotiating table. If the sellers have the leeway (read: equity), they might agree to bring the price down to the appraised value or near enough that the buyer feels comfortable putting some extra cash into the deal to close the purchase price-to-appraised price gap. Some buyers refuse to ever do this on general principal, as they feel like it’s overpaying for the property. Others realize that appraisals may come in low for reasons less indicative of the property’s value, like a lack of comparable sales in the area, and figure that to get the home they want, they’re willing to kick in a little extra dough.

4. Pay the difference or split the difference. On the flip side of renegotiating is reconsidering your personal position. If you’ve been house hunting for two years, forgoing low rates and the tax and lifestyle advantages of owning your home, and you’ve finally found ‘the one’ in great condition, perfect location you might think long and hard about whether you are willing to pay the difference between a low appraisal and the purchase price. This is especially so when the gap is small and you have the cash, or when you know the seller is barely breaking even on the deal or has offered to split the difference with you.

5. Change lenders. Mortgage banks have more control when it comes to choosing appraisers than mortgage brokers do. (Fortunately, many experienced local mortgage brokers work for companies that also have banking divisions, and may be able to process your loan through that division in an effort to get your transaction a fresh start and work around a low appraisal. Ask your mortgage broker if their office has a banking division, if you’re not sure.)

Realtors: What are some other low-appraisal workarounds that have worked for you and your

clients? How do you help buyers and sellers decide what moves to make when the appraisal

comes in low?

Randy BettInvestment Realtor/Author/Investor

Real Estate Professionals Inc.Better Group Real Estate 202-5403 Crowchild Trail NWCalgary, AB T3B 4Z1

Phone:403-774-7464 Ext:1Fax:403-208-0082Toll Free fax:888-711-6801

Randy Bett www.BetterGroupRealEstate.ca