Why is my mortgage appraisal too low and what can I do about it?
What should you do if your mortgage appraisal comes in low? Here are some possible contributing factors and solutions to help buyers and sellers get to the closing table when the mortgage appraisal does not support the agreed selling price.
Five reasons why your mortgage appraisal may have come in low:
There are a few possible reasons for a low mortgage appraisal. Experience has shown that they fall into the following categories:
Multiple offers cause inflated prices.
When a property is hot with interest and multiple home buyers bid the sale price up, it can be tough for the bank appraiser to find comparable sales to support the selling price. Without an inventory of similarly priced recently sold homes there is little evidence to support a higher sale price.
Too many houses and not enough buyers.
As the number of buyers in a real estate market decline, the demand for homes drops and prices will fall. If your new home is in a declining real estate market with little buyer activity, your new house might be worth less to the bank than it is to you.
Foreclosed homes and short sales tend to sell for less money than owner occupied homes.
If your prospective home is in a neighborhood with recently sold foreclosures and short sales your home appraisal will come in lower. Without enough information to work with it can be tough for an appraiser to accurately price your new home.
An appraiser not familiar with your location.
Neighborhoods can have unique personalities or traits that promote higher home values. An appraiser not familiar with the characteristics of a neighborhood might not factor in for the additional value.
Overpricing by the seller.
There is the possibility that you might be paying too much! Seriously, there are times when the seller has valued the property at a price that is just too high. A well thought through bank appraisal is often the most accurate valuation for a prospective home.
Five possible buyer responses to a low mortgage appraisal:
Here are the solutions we see most often for dealing with low mortgage appraisals
You can make up the difference with cash.
You could pay the difference between the maximum bank approved loan to value with cash. Be careful not to pay too much!
Lower the purchase price of the house.
Negotiate a lower home sale price within the limits of the bank appraisers value.
Borrow the additional money from the seller
The seller could offer you a second mortgage. Remember that you will need to pay the seller back! If the property is overpriced you could be in over your head.
Request a rebuttal to the appraisal
This is a long shot. Most of time a rebuttal won’t work. However, there is a chance that when the bank’s appraisal company goes back to the drawing board they will find the comparative properties to support the price.
If all else fails, you could cancel the transaction. An appraisal contingency should always be in your contract. A mortgage appraisal protects you and your money just in case your appraisal comes in lower than your purchase price.
Do you have questions about the steps to buying or selling your next home? Whether you are considering a move now or in the future, it’s never too early for you to ask questions about the home buying process.
Please call me. I am glad to help!