What Happens If Your Property Appraisal Is Low?

by

Jordan Rocksmith

When you’re buying real estate in Utah, there are a lot of steps you have to go through before you get the keys to your new house; if you’re buying your first home, it can be a confusing and stressful process. First, you have to negotiate with the seller. Once you agree on a price and sign a purchase contract, you have to start working with your lender to get mortgage approval–and that’s a beast of its own. Then comes the inspection, where you pray there are no big surprises.

If that comes back clear and you hit no snags with your mortgage documents, you may start thinking it’ll be smooth sailing from here on out. After all, there’s just the appraisal left, and that can’t cause any problems, right? Wrong! An appraisal value that is lower than the agreed-upon sale price can actually cause a lot of issues for both you and the seller. Here are some of the reasons your appraisal might come back low, the issues it can cause, and what you can do about it.Why Is It Low?If you think you got a good deal on the property, you may be wondering, “Why is it valued at a lower price?” There are a lot of possible reasons for this. The appraisal is determined not just by looking at the house, but by looking at recent sales of comparable houses in the area. In today’s growing real estate market, home prices are starting to rise. That means that recent sales are going to be a little lower than current or future sales; this actually makes a low appraisal value pretty common in today’s market.You will also want to look at the “comp” houses that the appraiser used; the seller will probably want to do the same thing. These are the houses that the appraiser compared to the property you’re buying. If any of these houses were a short sale, a foreclosure, or a cash sale, the sale price was probably lower than the home’s value, which means the appraisal value of the home you’re buying can be lower than the true value of the home.Of course, it’s always possible that the appraiser just didn’t do a good job. If you or the seller feels this is the case, there are steps you can take, but that will be addressed later.What Happens Now?So, you got a low appraisal value. How does that influence your purchase of the home? This depends a lot on your lender, but there are a few ways this can go:1. Nothing will change. Your lender will still approve you for the original loan amount.2. Your lender will require a bigger down payment. This is to protect the lender in the event that they have to foreclose on the house. They don’t want to finance the house for more than it’s worth, so they may ask for more of a down payment from you to cover themselves. 3. Your loan will be denied. If the appraisal is too low and you can’t agree on a lower sale price with the seller, you may actually lose your loan approval.What Can You Do?In general, the first thing you want to do in these cases is to try to renegotiate the sale price with the seller. Ideally, you’ll want them to come down to the appraisal price or a little lower, but not all sellers are willing to do this, especially if they feel the appraisal was poorly done.If you agree that there was an issue with the appraisal, you can fill out paperwork to appeal. This is primarily done by the seller, but you can work in conjunction with them to get it done. You will need to provide the reason you think the appraisal value was incorrect and give a list of new “comp” homes you would like them to use. However, it isn’t very common that the appeal results in a new appraisal value.In general, if you hit this bump in the road while buying real estate in Utah, you should talk to your agent and your lender and get their advice on how to best proceed.

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