What if my appraisal comes in too low?

 

If you are applying for a mortgage to buy your new home,   the lender, as your ‘partner’ in the purchase, wants to be absolutely certain that you don’t pay more than market value for the property. So, they will hire a licensed appraiser to value the property.

 

The appraiser will look for 3 properties that sold within the past 6 months, in the same community as the ‘subject’ property (the property you plan to buy), preferably within a mile, and as similar as possible in size, style and condition. Since in New England we are often hard pressed to find similar homes, they will use homes that differ and make ‘adjustments’ to compare them. For example, one home that sold may have a fireplace, yet the subject does not.  As a result, the value of the subject property may be slightly less than the value of the comparable sale.

 

When the number of sales is low, the appraiser may not have the data he needs to do a proper analysis. If your appraisal comes in lower than the price you had offered to pay, the lender could refuse to make the loan. You do have options.

 

First, you could contact the appraiser and question the properties he/she used as comparables.    Maybe the ‘comparable’ property had been rented by students reminiscent of those in ‘Animal House’ and the property was totally trashed. Or, maybe the subject has a brand, spanking new, granite and stainless kitchen.   The appraiser may be able to make adjustments in your favor.

 

Second, you could ask for another appraiser to value the property. You would have to pay for this, or convince the seller to pay.

 

Third, you can share the appraisal information with the seller and ask for a reduction in sales price. After all, maybe another purchaser will end up with the same appraisal value.

 

Finally, if you love the property and have the financial ability, you can buy it anyway and make up the difference by putting more money down.