Buying or selling a home is already a stressful process, but nothing throws a wrench in the works quite like a low home appraisal. If the appraiser values your home lower than expected, it can jeopardize your sale, your refinance, or even your financial plans. Fortunately, you don’t have to accept the appraisal at face value. You can challenge it. In this guide, we’ll walk you through how to dispute a low home appraisal and increase your chances of getting a fair valuation.
Understanding the Impact of a Low Appraisal
A home appraisal is a professional valuation of your property conducted by a licensed appraiser. Lenders use it to ensure that they are not loaning more money than a property is worth. When an appraisal comes in lower than expected, it can cause significant issues such as:
- The buyer’s loan may not get approved: Lenders won’t loan more than the appraised value, which means the buyer may need to come up with extra cash or negotiate a lower price.
- Refinancing challenges: If you’re refinancing your home, a low appraisal can reduce the amount of equity you have, limiting your refinancing options.
- A stalled or canceled sale: If the buyer and seller cannot agree on how to handle the low appraisal, the deal could fall through altogether.
Now that we understand the stakes, let’s explore the steps you can take to dispute a low appraisal.
Step 1: Review the Appraisal Report Carefully
The first step in disputing a low appraisal is to obtain a copy of the full report from your lender or real estate agent. Go through it thoroughly and look for:
- Errors in property details: Check if the appraiser made mistakes in the square footage, number of bedrooms or bathrooms, lot size, or home improvements.
- Incorrect comparable sales (comps): Ensure that the appraiser used comparable properties that truly match your home in size, location, and condition.
- Missed renovations or upgrades: If you’ve made major improvements (such as a kitchen remodel or a new roof) that weren’t included in the report, that could affect the valuation.
- Market conditions: Check whether the appraiser has accounted for recent trends, like increasing home values in your neighborhood.
Step 2: Gather Supporting Evidence
If you find inaccuracies in the appraisal, you’ll need solid evidence to back up your dispute. Here’s what you should collect:
- More accurate comparables: Work with your real estate agent to find recent sales of homes that are more similar to yours than those used in the appraisal.
- Receipts and documentation for upgrades: Provide evidence of major improvements, including before-and-after photos, receipts, and contractor invoices.
- Neighborhood market trends: If home values in your area are increasing, obtain data from real estate websites or local realtors to prove it.
Step 3: Request a Reconsideration of Value (ROV)
Once you have gathered your supporting evidence, you can submit a formal request for a Reconsideration of Value (ROV). This process involves presenting your findings to the lender and asking them to review the appraisal. When submitting an ROV:
- Be polite and professional in your request.
- Clearly outline the errors or issues in the appraisal.
- Attach your supporting documentation, such as more accurate comps and proof of renovations.
- Ask for a new appraisal if the errors are significant.
Step 4: Communicate with Your Lender and Real Estate Agent
Your lender plays a key role in the dispute process since they are the ones who ordered the appraisal. Schedule a discussion with your lender and your real estate agent to go over your concerns. If they agree that the appraisal was inaccurate, they may be able to:
- Request a review or correction of the original appraisal.
- Order a new appraisal from a different appraiser (though this may come at an additional cost).
- Negotiate with the buyer to find a compromise, such as splitting the difference or adjusting the purchase price.
Step 5: Consider a Second Appraisal
If your first attempt at disputing the appraisal doesn’t succeed, you may request a second appraisal from a different professional. Some lenders allow this if there is evidence that the first appraisal was flawed. However, keep in mind:
- A second appraisal may not guarantee a higher valuation.
- Some lenders may not accept a second appraisal unless the first one had significant errors.
- You may have to pay for the second appraisal out-of-pocket.
Step 6: Negotiate with the Buyer or Seller
If disputing the appraisal doesn’t work, the next best step is to negotiate. Depending on whether you’re buying or selling, here are some strategies:
- If you’re the seller: You can lower the selling price, ask the buyer to make up the difference, or split the difference with them.
- If you’re the buyer: You can request that the seller reduce the price, offer to cover part of the difference, or look for financing options that cover appraisal gaps.
Seller financing in housing can also be an option in cases where traditional financing falls short. This arrangement allows the seller to provide direct financing to the buyer, potentially bridging the gap caused by a low appraisal. This can be beneficial for both parties, as it gives buyers more flexibility while ensuring the seller still completes the transaction.
Step 7: Explore Other Financing Options
In some cases, your lender may offer solutions to work around a low appraisal, such as:
- Appraisal gap coverage: Some lenders offer loans that help cover the difference between the appraisal and purchase price.
- Portfolio loans: Certain lenders offer loans that aren’t subject to strict appraisal requirements.
- Private mortgage insurance (PMI) adjustments: If you’re putting down less than 20%, your lender may adjust PMI terms to offset the lower appraisal.
Final Thoughts: Be Prepared and Stay Proactive
A low home appraisal can be frustrating, but it’s not the end of the road. By carefully reviewing the report, gathering evidence, and working with your lender and real estate agent, you can effectively dispute the valuation. If your dispute is unsuccessful, negotiating with the other party or exploring alternative financing options can help keep your deal on track.
Above all, stay proactive and informed throughout the process. Whether you’re a buyer, seller, or homeowner refinancing, understanding your rights and options can make all the difference in securing a fair appraisal and achieving your real estate goals.