A low home appraisal can create problems during a purchase or refinance, especially when the appraised value comes in below the purchase price or expected property value. The good news is that an appraisal is not necessarily beyond review.
If you believe an appraisal is unsupported, inaccurate, or missing important information, you can ask your lender about a reconsideration of value, commonly called an ROV. The strongest requests focus on specific facts and supporting evidence rather than simply disagreeing with the appraiser's opinion.
Why Does a Low Appraisal Matter?
An appraisal provides an independent opinion of a property's market value. Lenders use valuations when evaluating the property that will secure a mortgage.
For a home purchase, an appraisal below the agreed purchase price can affect the amount a lender is willing to finance. Depending on the contract and circumstances, the buyer and seller may need to renegotiate the price, the buyer may need to bring additional funds, or another contractual option may need to be considered.
Review the Appraisal for Errors
Start by carefully reviewing the appraisal report. For first-lien mortgage applications, borrowers generally have the right to receive a free copy of appraisals and other written valuations obtained by the lender.
Look for factual information that could affect the analysis, such as incorrect square footage, number of bedrooms or bathrooms, property condition, lot characteristics, or features of the home. Also check whether significant renovations or improvements were accurately described.
Look Closely at the Comparable Sales
Comparable sales, often called comps, are an important part of many residential appraisals. Review the properties selected and consider whether there are more relevant recent sales that better reflect the subject property's location, size, condition, features, or other characteristics.
A different comparable sale does not automatically make the original appraisal wrong. The goal is to identify credible market evidence that may have been overlooked or incorrectly analyzed.
Gather Evidence That Supports Your Concern
If you identify potential problems, organize documentation that clearly explains them. Useful information may include:
- More relevant comparable sales
- Documentation of significant renovations or improvements
- Permits, invoices, or other records supporting completed work
- Corrections to inaccurate property characteristics
- Information about important features that may have been omitted
Keep the information specific and factual. A reconsideration request is more useful when it identifies a clear issue and provides evidence the lender and appraiser can evaluate.
Request a Reconsideration of Value
If you believe the appraisal is unsupported or contains significant deficiencies, contact your lender and ask about its borrower-initiated reconsideration of value process.
Current Fannie Mae requirements, for example, require lenders to maintain procedures that allow borrowers to request an ROV when they believe an appraisal is unsupported, affected by unacceptable appraisal practices, or reflects prohibited discriminatory practices.
The lender manages the ROV process and communicates with the appraiser as appropriate. Borrowers and other interested parties should not pressure an appraiser to reach a predetermined value.
Will an ROV Guarantee a Higher Appraisal?
No. Requesting a reconsideration does not guarantee that the appraised value will increase. The appraiser may review the additional information and conclude that the original opinion of value remains adequately supported.
However, when an ROV identifies errors or material deficiencies, those issues can be reviewed and corrected as appropriate. The objective is a reliable, well-supported valuation, not simply the highest possible number.
What Happens if the Appraisal Stays Low?
If the value does not change, discuss your options with your lender and real estate professional. In a purchase transaction, possibilities may include renegotiating the purchase price, changing the amount of cash brought to closing, or exercising applicable rights under the purchase contract.
A lender may consider additional appraisal review or another appraisal in certain circumstances, but a borrower should not assume that ordering a second appraisal will automatically replace the first one.
Act Quickly if You Believe an Appraisal Is Wrong
A low appraisal does not automatically end a home purchase or refinance. Review the report promptly, identify specific concerns, gather credible supporting information, and ask your lender about the reconsideration of value process.
Loan Wolf Lending can help Florida homebuyers and homeowners understand how an appraisal affects their mortgage transaction and what steps may be available when valuation concerns arise. Call 754-755-3075 to discuss your mortgage options.