You found the home you want, negotiated the price, and now the appraisal comes in lower than expected. Before you decide what that means for your purchase, let’s look at what has actually changed. The appraisal may affect your financing, but it doesn’t automatically tell us whether you should move forward or walk away. We’ll need to consider the size of the difference, your contract, your loan, your available funds, and — most importantly — whether the home still makes sense for you.
Appraisal issues can delay a closing, but knowing how the process works makes an unexpected result much easier to navigate. If you’re financing the purchase, your lender may use an appraisal to help evaluate the property supporting your mortgage. If the value creates a problem for the loan, I’ll help you understand the real estate choices while your lender explains what the appraisal means for your financing.
WHAT IS AN APPRAISAL?
An appraisal is an independent professional opinion of value based on market information and analysis. Depending on the assignment, the appraiser may consider the property’s location, size, condition, features, improvements, and relevant comparable sales.
It helps to distinguish the appraisal from a Comparative Market Analysis (CMA). A real estate professional generally prepares a CMA to understand how a home fits within the current market. An appraisal is prepared independently by a credentialed appraiser for a particular valuation purpose, often in connection with your loan.
WHY IS AN APPRAISAL NEEDED?
Your lender wants to understand the value of the property securing the mortgage. Depending on your financing, that may involve a traditional appraisal or another acceptable valuation method.
For a typical first-lien mortgage, you’re entitled to receive a free copy of the appraisal or other written valuation obtained by the lender. I encourage you to read it rather than looking only at the final number. Understanding the property information and comparable sales used can give us useful context if questions arise.
If you’re paying cash, there isn’t a mortgage lender requiring an appraisal, although you may still choose to obtain an independent valuation if that would help you make your decision.
WHAT IF THE APPRAISAL COMES IN LOW?
This is where I want us to separate the initial disappointment from the decision itself. You and the seller agreed on a price based on the home, the market, and what the property was worth to you. The appraiser has now provided another piece of information for the lender’s purposes.
If that information affects your financing, we’ll look at the choices available rather than assuming there is only one answer.
- You may have the option to cancel. If your contract contains an applicable appraisal or financing contingency and its requirements are met, you may have the right to terminate. We’ll look at the actual language in your agreement before deciding what that option means for you.
- We can explore whether the seller will renegotiate. Perhaps a lower price solves the problem. Perhaps you’re comfortable contributing part of the difference. Maybe you and the seller can meet somewhere between the two. I’ll help you evaluate the possibilities rather than assuming either side has to give up everything.
- You may decide to contribute additional cash. If your lender permits it and your finances allow it, you may choose to cover some of the appraisal gap yourself. Before doing that, we should consider what the additional cash means to your reserves and whether the home still feels worth that investment to you.
- There may be information worth asking the lender to review. If you notice an error, an important property characteristic appears to have been missed, or there are legitimate questions about the comparable sales, ask your lender about its reconsideration-of-value process. I can help identify relevant real estate information you may want to discuss with the lender.
THEN WE LOOK AT THE BIGGER PICTURE
The appraisal matters, but it isn’t the only information that matters. How long do you expect to own the home? How difficult would it be to find another property that meets the same needs? How much additional cash would be required? What would walking away cost you in time and opportunity? And what does the market evidence tell us?
Those questions can lead different buyers to different decisions — and that’s perfectly reasonable. There isn’t one correct response to every low appraisal.
If an appraisal issue arises, I’ll help you understand your contract, look at the market information, communicate with the seller’s agent, and work through the real estate options with you while your lender handles the financing decisions.
You don’t need to decide what to do simply because an appraisal number surprised you. First we understand it. Then we look at your options. And from there, I’ll help you find the path that still makes the most sense for you.