What can I do if my appraisal comes in low?

5 min read   •   Jan 5th, 2020 - 10:17

What can I do if my appraisal comes in low?

Nathan Kowarsky

Written by

Nathan Kowarsky

Are you worried about receiving a low appraisal or have you already received a low appraisal than your accepted offer? This article is for you.

Although the home-buying process has its own ups and downs, unquestionably the most nerve-wracking moment is when the appraisal ensuring that the appraisal doesn’t come in significantly lower than your expectations or the accepted offer.


Don’t worry, we have some solutions for you. Although it’s tough to remain calm in this situation, especially when the deal appears to be falling apart. We recommend that you should stay calm and make reasonable choices that could assist you to close the deal, successfully.


Why Do Low Valuations Happen?

According to recent Realtor Confidence index survey by the National Association of Realtors (NAR), 42 percent of the respondents faced the appraisal issues during January-March 2018.


Diane Saatchi, a seasoned real estate guru, explains that “In a rising market, low appraisals are common because the appraisals are based on sales that closed when the prices were lower”.


There are other factors that could lead to a low house appraisal. For instance

·Incorrect evaluation by the inexperienced appraiser

·Declining market value due to a low buyer interest in certain neighborhoods

·Overpricing by the seller

·Appraiser overlooked the pending sales data or relied upon data of incomparable sales.

·There are no acceptable comparables that can be used to justify your purchase price


How Does A Low Appraisal Can Change My Loan Options?

When you are buying a home, your lender can issue you a loan on the lower of either your accepted bid or the appraisal value. For instance, you have negotiated a price of $500,000 for a home in a competitive market and applied for loan equivalent to 80 percent of the property price. And you have planned to have 20% as a down payment (that you already have). When the lender’s appraisal comes back, it shows the value of the home is $450,000.


As the appraisal is significantly lower than the negotiated price, therefore, your panic is justified. You must now arrange another $50,000 to close the deal, or the deal will fall apart.



Although a low real estate appraisal is discouraging, however, it does not have to be a deal breaker.


Makeup the difference in cash, if you can afford that

A low appraisal does not mean that lender will not issue the funds, as the lender only cares about the appraisal to the extent it affects the loan-to-value ratio. For instance, it means that the lender will only issue a loan at the appraised value. Therefore, you can pay the remaining amount, if you can arrange it.


Renegotiate the agreement

If there are only a few buyers in the market, and the interest in the property is low, the seller may agree to lower the price. This is a solution where everyone benefits (i.e. both seller and buyer are happy).

Peter Grabel, a mortgage expert, adding that “you might go back to the seller and ask them to reduce the price. Although they are under no obligation to do so, they might be willing to cooperate because they don’t want to lose you as a buyer as they don’t have any other offers for the property”.

Although, the seller might be upset about the low appraisal, most reasonable sellers eventually come to terms knowing the fact the most future buyers will come in at the same value. The following adage explains the point “Sometimes a bird in the hand is best”.


Appeal the appraisal

Also known as the “rebuttal of value”, this solution requires some teamwork. For instance, the homeowner, buyer, and mortgage officers must work together to find the comparable market value data that the appraiser might have missed.

Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage”, argues that “it is possible that the appraiser overlooked some important data (for instance, homes similar in location, square foot, and style). The appeal team can provide this data to the appraiser to justify their higher valuation”.

This appeal might include the price of recent listing collected from the listing agents to show that the recent price hike in the area. There is a chance that the appraiser might change his valuation, however, it is a hard battle to fight.


Order a Second Appraisal

If you have applied for a Federal Housing Authority (FHA) loan, ask your lender to provide a list of FHA-approved appraisers. In some cases, there is a possibility of a second appraisal. Either the buyer or the seller can pay for the second appraisal that can often range in between a few hundred to a thousand dollars. Sometimes, the second appraisal may offer a higher valuation, especially, if the first appraiser was inexperienced or made mistakes while evaluating the housing data.

If your loan is a conventional loan, then it is subject to the rules of the Home Valuation Code of Conduct (HVCC). Under these terms, you are eligible to demand a local appraiser if you find out that that the lender hired an appraiser who is not familiar with the local market.


Apply for mortgage insurance

If any of the solutions above, do not work and you still want the property, you can apply for a mortgage insurance. However, if this option is selected you will have to pay a mortgage insurance premium for the mortgage period. That is, your monthly payment will consist of the mortgage payment, mortgage insurance, property tax and property insurance.


Concluding thoughts


If the appraisal is not according to the negotiated agreement, you can always cancel the deal. However, there are a few options, if you really want to buy the property. If the appraisal is conducted by the non-FHA-approved appraiser, the seller has the option to relist the property in the market and may be able to sell it for the listed price. Still, most reasonable sellers will eventually come to terms knowing the fact the most future buyers will come in at the same value.


Written by Nathan Kowarsky, NMLS 294599, President of Clear Mortgage Capital, Inc. in Irvine California. He can be reached at 949-238-6220 or at [email protected].

Nathan Kowarsky

Nathan Kowarsky

CEO NMLS: 294599

As CEO, Nathan understands the needs of his clients, and creates a plan to meet them. It’s that intuitive sense – intersecting with his deep expertise – that drives results.

During the course of his career, Nathan has funded more than 7,000 home loans. It is based on that knowledge that he walks clients through each step of the process, and trains his staff in the same standards and methodologies.

Nathan’s philosophy is straightforward: professionalism and competency require integrity and honesty. Those principles infuse the leadership he brings to Clear Mortgage Capital (CMC). Positioned as a subject matter expert, and acknowledged as an industry leader, Nathan understands that growth is not sustainable without delivering quality service and actively shaping CMC’s corporate culture.

In May 2022, Nathan received the 2022 Visionary Innovation award from the Association of Independent Mortgage Experts.   Following suit, in October 2022, LA Times awarded Nathan as 2022 OC Visionary in the finance/banking category.   Nathan has also been featured on ABC7 LA as a subject matter expert, commenting on recent market conditions. 

Prior to founding CMC, Nathan spent four years as President of E Capital Mortgage. During that time he oversaw over 700% growth. Previously, Nathan served as a senior mortgage banker, loan officer, and trainer for several industry leaders, including LendingTree, Nationstar Mortgage (now Mr. Cooper), and loanDepot. He holds a Bachelor’s Degree in Business Administration and is affiliated with the California Bureau of Real Estate and Orange County Association of Realtors. Recently, Scotsman Guide ranked Nathan among the Top 10 mortgage lenders in Irvine, California.

See Nathan's reviews here: https://www.zillow.com/lender-profile/nkowarsky/

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