Your Home Appraisal Came in Low. Now What?
By Mark Jost, NMLS #150914 · Published
You found the house. Your offer got accepted. Then the appraisal comes back, and the number is lower than the price you agreed to pay. That feels scary. The good news is that you have choices. Let me walk you through them in plain words.
What is an appraisal?
An appraisal is a report from a licensed appraiser. The appraiser visits the home and looks at homes nearby that sold not long ago. Then the appraiser gives an opinion of what the home is worth.
The lender uses that number to decide how much it can lend. The lender cares about the value because the home backs up the loan. For a regular (conventional) home purchase loan, the lender uses the price or the appraised value, whichever is lower. So a low appraisal can mean a smaller loan.
An appraisal is not the same as a home inspection. An inspection looks for problems with the house. An appraisal is about value.
You have a right to see it
Federal rules say the lender must give you a copy of the appraisal for a first mortgage on a home. You get it as soon as it is done, or at least three business days before closing, whichever comes first. The lender can't charge you just for the copy. (You may still pay for the appraisal itself.)
So read it. Look at the facts about your home. Is the square footage right? The number of bedrooms and baths? Did it miss a new roof or a finished basement?
Why it might come in low
- Few recent sales nearby. Some neighborhoods, especially out in the country, don't have many recent sales to compare.
- A fact is wrong. A missed bedroom or wrong lot size can change the value.
- The price got ahead of the market. When many buyers want the same house, the price can go past what recent sales show.
Your five options
- Ask the seller to lower the price. Some sellers will meet you part way, since the next buyer's appraiser may say the same thing.
- Pay the difference in cash. If you have extra savings, you can cover the gap. Just keep enough money set aside for closing and moving.
- Split the gap. You and the seller each give a little.
- Ask for a second look. This is called a "reconsideration of value." More on this below.
- Walk away. Your purchase contract may let you do this. Ask your real estate agent what your contract says and how many days you have. Deadlines matter here.
How to ask for a second look
For loans sold to Fannie Mae, the lender must have a way for you to ask the appraiser to look again. You get one request per appraisal. A good request includes:
- The facts in the report you think are wrong, and why.
- Up to five better home sales to compare, with where you found them (like the listing number).
- A short note on why the new facts support a higher value.
Your real estate agent can help pull recent sales. I help put the request together and send it the right way. One rule to know: nobody is allowed to push the appraiser to hit a number. The law protects the appraiser's opinion. We can share facts. We can't apply pressure.
The value may go up, or it may stay the same. Either way, you will know where you stand.
My advice
Don't panic, and don't wait. Read the report the day you get it. Call your agent. Call me. A low appraisal is a problem we can work on together, and many times it ends with a fair deal for everyone.
If you are buying in Nashville, Franklin, Brentwood, or anywhere in Middle Tennessee, I'm happy to look over your report with you. There is no cost to ask.
Sources
- CFPB: Regulation B, 12 CFR 1002.14 (copies of appraisals)
- Fannie Mae Selling Guide B4-1.3-12, Appraisal Quality Matters (reconsideration of value)
- Fannie Mae Selling Guide B2-1.2-01, Loan-to-Value Ratios (lower of price or appraised value)
- Fannie Mae: Reconsideration of Value FAQs
- CFPB: Regulation Z, 12 CFR 1026.42 (appraiser independence)
This article is general information, not a loan offer or legal advice. Every loan depends on credit, income, and property review. Mark Jost, NMLS #150914. Heathrow Mortgage, Company NMLS #1849599. Equal Housing Opportunity.