A low appraisal, in which the appraiser's opinion of value is lower than the sale price or loan amount, is a common occurrence in weak real estate markets and can mean trouble for the buyer and seller.
Implications of Low Appraisal for Buyer
If the house is deemed to be worth less than the sales price or loan amount, the lender typically won't approve the buyer's loan. That can happen even if the buyer has been pre-approved, since a pre-approval usually is contingent on an appraisal that's acceptable to the lender.
Implications of Low Appraisal for Seller
If the appraiser doesn't believe the home is worth as much as the buyer has agreed to pay for it and the buyer can't get financing for the agreed upon price, the seller may not be able to sell the home. Even if the seller can find another buyer, it is possible that the low appraisal will happen again.
What Happens After a Low Appraisal
One way to overcome a low appraisal is to find a mistake in the appraisal data and ask the appraiser to reconsider. Another option is to renegotiate the sale price to a lower amount. Sometimes the sale can proceed if the buyer makes a larger down payment.
References
- MarketWatch: How To Fight Back Against a Low Home Appraisal
- Trulia: How To Avoid a Low Appraisal, and What To Do If You Get One
- Board of Governors of the Federal Reserve System. "Federal Fair Lending Regulations and Statutes: Fair Housing Act," Page 1. Accessed Jan. 17, 2020.
- Consumer Financial Protection Bureau (CFPB). "What Is a Loan-to-Value Ratio and How Does It Relate to My Costs?" Accessed Jan. 17, 2020.
- Quicken Loans. "Saving Your Home Sale When the Appraisal Comes In Too Low." Accessed Jan. 17, 2020.
- Garden State Home Loans. "What to Do If You Get a Low Appraisal." Accessed Jan. 17, 2020.
- MountainSeed Appraisal Management. "Why, How, & When You Should Get a Second Appraisal." Accessed Jan. 17, 2020.
- Quicken Loans. "How An Appraisal Contingency Can Protect You." Accessed Jan. 17, 2020.
Writer Bio
Marcie Geffner is a freelance writer in Los Angeles and has been writing about real estate for 20 years. Her work has been published in newspapers, magazines and on websites. She received her bachelor's degree in English from UCLA.