Apart from the home inspection, home appraisals are probably one of the most dreaded parts of buying, selling, or refinancing a home. A low appraisal can suddenly mean you can’t sell your house for as much as you needed to, or you can’t refinance and get that better interest rate. The worst part, is that you don’t know until you’ve already paid for the home appraisal. And it’s not like you can avoid paying for the appraisal. Banks require it, because they want to protect their money, and to be able to get that money back in the event of a foreclosure.
The best thing to do to deal with a low appraisal is try to and avoid one in the first place. But sometimes, that’s easier said than done. For whatever reason, you house appraised low, and now you’re stuck. Either you can’t refinance now, or you have to lower your asking price in order to sell.
Trying to Avoid a Low Appraisal
If you don’t want to have your house appraised low, the first thing to do is get prepared. First impressions are everything, especially when it comes to homes and values. This could be as simple as mowing your lawn, and washing some dishes. In reality, most appraisers will overlook small things, but if your house is messy, and it causes your home to look like it has more wear and tear than normal, that will definitely hurt your appraised value.
Before the appraiser even comes over, clean your home. Fix that leaky faucet. Do the maintenance you might have been putting off, and your home will make that much better of an impression. A fresh coat of paint can make a world of difference.
The Dreaded Low Appraisal
There are circumstances beyond your control, and sometimes, those are the very things that can cause a low appraisal. So, your house appraised low. Not only was it lower than you were expecting, but the appraisal was actually lower than what your home should be worth. Now what?
Appraisers base a part of their decision on the condition of your home. The other part is comparing your home to the value of other homes in the area. They’ll look at what these other houses sold for, and how long they sat on the market. If your local housing market is slow, and your neighborhood isn’t as nice as it used to be, your appraisal might end up a lot lower than you’d like. And now, you can’t sell or refinance. So what do you do? Can you do anything?
Getting a Second Opinion
Unfortunately, there are a lot of rules in regard to home appraisals. It’s carryover from the housing crisis, and the regulations regarding appraisals have become a lot stricter than they once were. But this doesn’t mean that you don’t have options. Your options are certainly more limited now, but you can still fight a low appraisal, as long as you have cause.
When it comes down to it, an appraisal is simply the opinion of an individual. Granted, this is a licensed, trained, and professional individual, but people can still make mistakes. You can try to write a letter appealing to either the lender or the Appraisal Management Company. This is still no guarantee, and you’ll have to show that the appraiser made an error.
If you can show that the appraiser made an error, you’ll have a chance to get a higher appraisal. But what kinds of errors could an appraiser make? They might have miscalculated square footage of a room, or counted incorrectly. They might have also missed a big amenity, like a swimming pool. Worse, they might have selected a comparable property that had a lower value, instead of using one with a better value. Perhaps the appraiser used a neighborhood that doesn’t really compare to yours. If many of the comparable properties were actually foreclosures or distressed homes, the values would be much lower than an actual comparable home.
After the Low Appraisal
If worse comes to worse, and you can’t win your appeal to get a higher appraisal, you still aren’t completely out of options. Refinancing will certainly be more of a challenge. Depending on the appraised value of your home, you might have to put more money down, pay private mortgage insurance, or both. Of course, in the worst case scenario, where you home is appraised below your current loan, all you can do is wait, or try to take advantage of a government program designed for underwater mortgages.