Most people understand the need for a home appraisal, and in a typical market, if the assessment comes in short (in other words, if the appraised value is less than the contract price) buyers and sellers renegotiate. 

This is not a typical market.

Short appraisals are more common because appraisers typically use a method of valuation called the sales comparison method. This strategy is based on using sales information from the last 6 months from comparable properties to give the subject property a fair market value. When home prices increase are moving dramatically every month instead of every year, this strategy is more susceptible to having appraisals come in low. Here are some strategies to protect yourself from a short appraisal.

Home sellers protect yourself from a short appraisal.

Tip 1: Know your buyer

Not all mortgage financing is created equal! In this market, cash and Conventional are king. Knowing your buyer is well qualified to purchase the home can make a huge difference when it comes to an appraisal coming in short. Buyers who have additional funds to put down can make up the difference of the appraised value versus the contract price. However, they are by no means obligated to do this. It really just depends on how badly they want the property and what the buyer and seller negotiate.

Tip 2: Backup offers

Appraising is an art, not a science. Just because one appraiser decided the home is worth 330,000 doesn’t mean every appraiser will decide the home is worth 330,000. The appraisal coming in low is something that can happen in any transaction. Having an excellent real estate agent who understands the value of having backup offers can save you from relisting the property. 

Tip 3: Relationships matter

Experienced brokers and real estate agents know how to navigate short appraisals. They have relationships with lenders, other agents, and industry experts. Appraisals come in short for various reasons and brokers/real estate agents can help to negotiate the best terms for you. Reputations, experience, and relationships help get your deal back on track. If you think you’ve had a bad appraisal, you can always reach out to us to order a second opinion.

Homebuyers protect yourself from a short appraisal.

Tip 1: Cash Reserves

Cash reserves are the easiest way to make up the difference between a contract price and an appraised value. If you offered $330,000 for a home and you put 10% down ($33,000), your loan amount is for $297,000. If the home appraised at $320,000, the lender is only going to lend to the value $320,000.  As the buyer, you have the option to pay the extra $10,000 from the agreed upon price versus the amount not being financed. By having cash reserves, you can cover the difference and close on the home! 

Tip 2: Challenge The Appraisal 

It doesn't matter what kind of environment we are in, bad appraisals do happen! If you feel the appraisal has an unacceptable value, you are able to challenge the appraisal. You can provide recent comparable sales to illustrate your opinion. However, the appraiser always gets the last say. You can have the best comps in the world, but if the appraiser doesn't feel the same way, you don't have a leg to stand on. At Chissell Mortgage Group, we have a great history in challenging appraisals and not only having them changed once but multiple times in the same transaction! 

Tip 3: Put Together A Team With Experience

It takes a village to purchase a home. Things are going to come up during the process. It’s not a matter of if but when. When an appraisal comes in short, you have 3 options. The buyer pays up to the contract price, the seller comes down to the appraised value, or you meet somewhere in the middle. Having an experienced mortgage broker and real estate agent not only helps with challenging the appraisal, but handling the bumps in the road that come with any transaction. 

Other important things to know about home appraisals

The value of the appraisal is important because lenders are unwilling to finance loans on properties that do not have adequate collateral. They are only going to lend on the appraised value of the property or the sales price, whichever is lower. The kind of mortgage that you get will determine the kind of appraiser you will receive. Conventional, FHA, and VA loans all have their own licensed appraisers. As a rule, appraisers who are doing FHA or VA appraisal have more experience in the industry. 

The Appraisal Process

We will request an appraisal management company (AMC) to complete the appraisal. The appraisal will be done by a licensed real estate appraiser that the appraisal management company chooses. A typical home appraisal costs somewhere around $500. This can change dramatically depending on the size, type of property that is being appraised, and how difficult finding similar sales for the appraiser is. 

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