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How Home Appraisal Values Affect Buying and Selling a Home

July 1, 2022 | 5 minute read

You’ve been pre-approved to buy a new house, you found your dream home, and it’s perfect in every way. You submitted a purchase agreement, and the seller accepted. Next stop, closing day! 

Wait, pump the brakes. Your next stop is waiting for the home appraisal by the lender.

Just because you think the home is worth every penny you promised to pay for it doesn’t mean the lender will agree. Since it’s their money that you’ll be using to buy the house, the final decision is up to them.

Understanding Home Appraisal Values

A home appraisal is the lender’s assurance that what you’re paying for a house isn’t beyond the house’s worth. So to assess the loan-to-value ratio, the lender will send in a trained, unbiased appraiser who estimates the home and nearby comparable homes to determine a market price for the home you agreed to buy.

If their appraisal value is widely different than what you agreed to pay, you’ve got a problem. However, this is not a problem without solutions.

Low Home Appraisals Do Happen

While not a common occurrence, lower appraisal issues do come up. This is especially true in hot markets, multiple bid situations or when a home offers an exciting attribute that doesn’t add to the appraised value. This could include the home’s history; perhaps a celebrity or political figure lived there. While interesting, that won’t increase the home’s value.

Landscaping won’t add to a home’s appraised value either. You might be attempting to buy the cutest, most perfectly manicured English garden cottage in the world, but it won’t matter.

So, what determines a home appraisal value?

Appraisals are based upon the home’s condition, the attributes of the house (number of bedrooms, bathrooms, finished square footage, garage, and other standard details), and the size of the property. Some home upgrades can increase the appraisal value, like furnace replacement or a new roof, but not everything applies. Be sure to provide the appraiser with a list of all upgrades to get the highest appraisal value possible.

What To Do When a Home Appraisal is Too Low

What happens when the appraisal is lower than your offer? Is the deal dead? It might be, but there are options you can still pursue. Try these before you give up on your dream home.

Check for Errors

An appraisal is less about opinion and more about facts. That said, mistakes can be made. Perhaps a room was mismeasured or missed altogether. Maybe inaccurate comparable sales were pulled. It’s even possible a comma was misplaced or a number written down incorrectly. Appraisals are done by people, and people make mistakes. So start by checking for any clear errors that can be found in the appraisal.

Get a Second Opinion

Work with your realtor to pull comparables and market reports to support your proposed offer. Make a case for why the appraisal missed the current market value. 

Lower the Offer

A low appraisal can end up saving you money. Maybe your excitement to buy the house caused you to offer too much. Or perhaps the seller’s emotional connection caused them to over-price the home. In either case, an accurate appraisal can help both parties readjust their expectations and settle on the fair market price. Ultimately, the seller usually doesn’t have much choice other than lowering their price. No mortgage lender will approve a loan for more than a home is worth on paper.

Make a Larger Down Payment

If you have the means, increase your down payment to compensate for the low appraisal. Let’s say the appraisal came in $10,000 less than the requested loan amount. If you can add $10,000 to your down payment, the loan request changes to fit within the appraiser’s valuation.

Change Your Loan Program

Different loan programs have different requirements. Sometimes, you can make a lower home appraisal work by switching the way a home is financed. The best way to do this is to work with a personal loan officer.

Move On

Sometimes, deals just aren’t meant to be. Rather than trying to make a bad deal work, accept that the numbers just don’t add up and look for a better purchase. As much as you may want to live in the home, you should never fight to put yourself into a home that’s worth less than you paid for it on day one.

What Does It Mean When the Home Appraisal Is High?

Typically, a home appraisal will come in just a bit more than the price you are paying. Of course, the higher the appraisal value compared to your purchase offer, the better. If you agree to buy a home for $250,000 and the appraised value is $270,000, that means you have $20,000 of immediate equity. That’s a homebuying win!

What Does Home Appraisal Value Mean for Your Dream?

By understanding the home appraisal value, you’re better able to make a wiser home purchasing decision. Smart buyers look at the appraisal as perhaps the best tool for gauging just how good of a value they got. It’s an unbiased, unemotional, totally objective assessment of the agreement. 

Again, appraisal issues aren’t common, but they aren’t unheard of, so be prepared for the possibility. When you work with a personal loan officer, they can help you navigate some of the issues that might arise from a low home appraisal and find ways to help you get approved.

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