What to do if your home appraisal isn’t what you expected
Here’s why there may be a gap between the appraised value of a home and the purchase price—and what you can do about it.
Read, 4 minutes
Before a home can be sold or a mortgage refinanced, there is a critical step that needs to happen: an appraisal. Once an offer is accepted, a home appraisal is typically ordered to provide an unbiased assessment of the market value of the property that helps the lender determine—and approve—the right amount of financing.
In some instances, there is a difference between the home’s appraised value and the contracted purchase price. This type of gap can reduce the amount of financing a lender will approve, causing headaches for both the seller and the buyer. Here are some common reasons a home appraisal could have discrepancies and the steps you can take to keep your deal on track.
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Why your home appraisal might not be what you expected
There are many reasons a home appraisal could come in for less than expected—from something as simple as a lack of curb appeal to more complex issues like foreclosures on neighboring properties. However, sometimes it’s just a human error, whether on the part of the appraiser or the seller and their agent.
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It’s not uncommon for a person selling their home to overestimate its value or the impact of improvements they’ve made. Likewise, it can be difficult for a seller to accurately assess real estate market conditions, which can quickly switch from hot (where a bidding war between potential buyers can artificially drive up a home’s price well past its actual value) to not-so-hot.
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A lower-than-expected appraisal could be the result of an honest mistake or a difference in opinion. Perhaps the appraiser miscounted the number of bedrooms, for example, or didn’t properly calculate the value of recent home improvements. The appraiser also might have used old market comparisons or property listings to gauge the home’s value. Keep in mind, appraisals are both objective and subjective in nature—meaning they are based on public information and market data, as well as the appraiser’s professional opinion and experience in the neighborhood.
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How to dispute a home appraisal
If you don’t agree with an appraiser’s assessment, you have options. Here are a few steps you can take to challenge an appraisal:
Step 1
Request a copy of the appraisal and review it closely with your mortgage lender or real estate agent to ensure no information is missing or calculated incorrectly.
Step 2
Work with your real estate agent to find accurate comparisons of recent local home sales that prove your property's value is higher.
Step 3
Submit a written request to the mortgage lender asking them to revisit the assessment—this is known as a Reconsideration of Value (ROV). State why you believe the appraisal is lower than it should be, providing evidence of errors or sharing comparable home sales that occurred just prior to the appraisal date.
Step 4
Ask the lender for a second opinion (which they may not offer). You can also pay for an additional appraisal at your own cost, though the buyer’s lender doesn't have to accept it.
Step 5
If the lender won’t reconsider or you think you received an unfair home appraisal, there are places to turn to for help. You can file a complaint with your state appraisal board, the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development.
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How to save your sale after a low appraisal
If you’re not successful in appealing a low home appraisal, there are still a few options available to make the transaction happen. Be sure to speak to your real estate agent about the pros and cons of each:
The seller can reduce the purchase price to match the appraisal value.
The buyer and seller can compromise on an amount that splits the difference between the asking price and the appraised value.
The buyer can offer to pay the difference between the purchase price and the amount the bank will lend (which is generally no more than the appraised value) in cash.
The homeowner can offer seller’s financing to the buyer for all or part of the transaction. This essentially means the seller gives the homebuyer a loan.
If an agreement can’t be reached between buyer and seller, both sides can cancel the transaction and the seller can relist the property.
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While many parts of the home appraisal process are out of your control, it’s important to prepare yourself ahead of time so that you’ll know what to do if any discrepancies come up along the way.
