Low Home Appraisal? Here Are Your Options

You've found the home, your offer was accepted and everything is moving toward closing. Then the appraisal comes in lower than the price you agreed to. It's a stressful moment for buyers and sellers alike, but a low appraisal doesn't have to end the deal. Here's what it means and what your options are.

What an appraisal is, and why it matters

If you're financing a purchase, your lender will order an appraisal: an independent, professional opinion of the home's market value. Lenders base the loan on that value, so if the appraisal comes in below the contract price, the lender generally won't lend against the difference.

That leaves a gap between what the buyer agreed to pay and what the lender will finance.

Your options after a low appraisal

• Renegotiate the price. The appraisal gives both sides an objective reference point. Sellers will often lower the price to meet it, or the two sides meet somewhere in the middle.
• Cover the gap. If you love the home and have the funds, you can bring extra cash to closing to make up the difference.
• Combine the two. A price reduction plus a smaller amount of extra cash from the buyer is a common compromise.
• Challenge the appraisal. If you believe the appraiser missed something, you can ask your lender for a reconsideration of value (more on that below).
• Walk away. Depending on the terms of your contract, you may be able to cancel. Your agent can explain exactly what your contract allows, and when.

How to request a reconsideration of value

Appraisers are human, and mistakes happen: the wrong square footage, a missed renovation or comparable sales that aren't truly comparable. If you think the value is off, work with your agent and lender to request a reconsideration of value. Strong requests include:

• Specific factual errors in the report, such as square footage, bedroom or bathroom count, or lot size
• Recent nearby sales that are more comparable than the ones used
• Upgrades and improvements the appraiser didn't account for

If you suspect discrimination

An appraisal should reflect the home and the market, never the race, color, religion, national origin, sex, disability or familial status of the people who own or are buying it. If you believe an appraisal was affected by bias:

• Tell your lender in writing and ask for a reconsideration of value.
• Keep records of the report, your communications and anything that concerns you.
• Know you can file a complaint. You can file a fair housing complaint with the U.S. Department of Housing and Urban Development (HUD), generally within one year of the alleged discrimination.

Plan ahead

A good agent helps you prepare for this before it happens: pricing a listing with solid data, or writing an offer with the right protections and a plan for a possible gap. If you're buying or selling in North Carolina, let's talk. You can also see current numbers in my local market reports.

Source and further reading: “Low Home Appraisal? What to Do if You Suspect Discrimination”, originally published by NerdWallet, via Trending Home News.