What to Do if Your Home Appraisal Is Too Low

You’ve finally secured a buyer for your piece of Floridian paradise, and both of you are eager to move forward. Now for the last major hurdle in the process — the home appraisal. The money lender will typically order one to assess the home's value and use the estimate to ensure they’re making a sound investment. If the house were ever to foreclose, the bank needs to ensure they didn’t lend more than the property was worth.

In most cases, you shouldn’t have anything to worry about. However, a few factors could cause a low appraisal to come in. If that’s the case, your buyer’s financing could fall through. What can you do?

What Does a Low Appraisal Mean?

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A low appraisal means the appraiser who assessed your home found the value of your property to be less than the current asking price. Some things they typically look for are:

  • Location

  • Size

  • Condition

  • Age of the home

  • Recent upgrades

  • Quality of the exterior

  • Structural integrity

  • Safety features

  • Signs of infestation

They’ll assign a value to your home based on these considerations. A low appraisal means your buyer would have to pull out of the offer, renegotiate the amount with you or make up the difference in cost out of pocket. A bank won’t finance a purchase price higher than the appraisal.

What Causes a Low Appraisal?

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Problems with any of the checklist items can lower your appraisal. The good news is most of those criteria are under your control. However, some outside factors may also play into your final appraisal amount. For example, the current Florida housing market significantly impacts your home's perceived value. Having more buyers than available homes increases your property’s worth, but the reverse is also true.

Another crucial factor is the homes in your neighborhood. Is your well-maintained house surrounded by others in much worse condition? If so, your neighbors could drive the value of your property down. Also, if there haven’t been many recently sold homes in your area, the appraiser will have less accurate information for your appraisal. Along that same vein, recent foreclosures or short sales create lower comparables, dropping your assessment.

What Are Your Options?

A low home appraisal can feel like quite a blow, but it isn’t the end of the world. A good real estate agent can help you assess your options and lead you to a decision that makes the most sense for your situation.

In general, you have five options:

1. Make Home Improvements

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Making home improvements is an excellent option for raising your home appraisal if your current contract affords you some time for repairs. Alternatively, you can pull your house from the market and make necessary changes before relisting. Either way, you’ll want to address any red flags from the assessment, like an infestation or structural problems.

Kitchen and bathroom renovations can be costly but significantly raise the value of your home. Updates to features like the roof, windows, furnace and HVAC make buyers and assessors happy. If your budget is small, deal with the red flags first and then throw the rest of your budget into minor upgrades. Don’t underestimate the power of a coat of paint or a little curb appeal.

2. Lower Your Asking Price

One option is to take a slight loss on your home and reduce the price. Lowering the asking to the same amount as the appraised value will allow your buyer to finalize their financing and proceed with the sale.

3. Negotiate With the Buyer

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A similar alternative is to negotiate the price and terms with the buyer. Perhaps they’re willing to use cash to make up some of the difference or get another loan. You, in turn, could lower your asking price a bit. For example, if the original offer was $250,000 but the appraised value was $225,000, you could reduce the cost to $235,000 and the buyer could pitch in $10,000 in cash.

4. Get a Second Opinion

Sometimes a bank will allow for a second appraisal. People make mistakes — perhaps your first appraiser was inexperienced or didn’t know your area well. A recent sale under market value could have lowered the perceived value. Petitioning for a second appraisal might be worthwhile if you think you have a strong case.

5. Back Out of the Deal

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If you or the buyer are unhappy with the appraisal amount, either one of you can back out of the deal. Your real estate agent can talk you through the situation's pros and cons and help you make a reasonable decision. Sometimes the best bet is to back out and find a new buyer.

Where to Go From Here

Luckily, a low home appraisal isn’t the end of the world — you have many options moving forward. Seek advice from a professional to walk you through the process and give their recommendations. Depending on the market, your buyer may be willing to negotiate on the offer price or with time so you can make necessary repairs and request a second appraisal.

A little bit of human compassion and understanding can go a long way in smoothing over situations like this, so don’t lose heart.