How to Challenge a Low Home Appraisal

October 30th, 2023

Signs of economic recovery have housing prices surging and homeowners looking to make moves. Whether you are looking to purchase a home, sell your property, or refinance an existing mortgage, property owners will have to undergo an appraisal. Appraisals are performed by mortgage lenders to properly assess the value of a home.

In the unfortunate event that a mortgage lender returns a low home appraisal, there are a few different paths forward as well as a range of new challenges to overcome.

What Is a Home Appraisal?

Before diving into our discussion on challenging a low appraisal, it is worth understanding exactly what a home appraisal is.

A home appraisal is the estimated value of a property as decided by the unbiased professional opinion of an appraiser. Appraisals are integral to the lending market as they determine whether a home is listed at its appropriate contract price.

Factors Weighed During a Home Appraisal

  • Condition of Property
  • Location
  • Recent Comparable Sales
  • Square Footage of Home
  • Number of Bedrooms and Bathrooms
  • Property Zoning Figures
  • Housing Improvements Since Purchase
  • Personality of Home (“Uniqueness”)

Consequences of a Low Home Appraisal

A low home appraisal can dramatically alter the complexion of a real estate deal. Not only does the low appraisal number change the value of the home, it potentially derails the entire sale.

According to a study published by Fannie Mae, low appraisal values impacted almost 10% of real estate deals in 2017, potentially delaying or altering contracts already made between buyer and seller.

Other impacts of a low home appraisal include:

  • Private Mortgage Insurance May Be Required
  • Availability of Cash-Out Refinancing
  • Access to Necessary Financing
  • Changing Interest Rates Offered by Mortgage Lender

Homes with low appraisal figures can either be sold at a loss, appraised a second time, or the difference between appraisal and mortgage can be covered by the seller.

Disputing a Low Home Appraisal: 6 Steps for Success

First and foremost, when a low home appraisal arrives at your front door — don't panic! A low appraisal happens roughly 8% to 10% of the time, which is a significant number of homes. With that being said, there is still work to be done.

1. Acquire a Copy of Your Appraisal

Challenging a low appraisal requires understanding exactly what went into the decision. Acquire the paperwork used by the appraiser to accurately understand what your report stated. The Bureau of Consumer Financial Protection requires that your mortgage lender make this document available to you.

2. Review the Document for Errors

While appraisers are professionals, mistakes can happen. Assess your paperwork for potential errors, paying particular attention to square footage calculations, neighborhood and school district classifications, and any other areas where mistakes could have been made.

3. Compare and Contrast Housing Comps

Check comparable sales against the figures listed in the report. It is also possible to contest the specific houses used as comparables in the home appraisal. This research can be done yourself or with the help of a professional. Utilize the internet and major real estate platforms to track properties and housing comparisons. A real estate agent familiar with the area can be particularly beneficial.

4. Provide Any Upgrades and Housing Improvements

Your appraiser may have missed upgrades or housing features installed onto your property. Whether your home appraiser was in a hurry or overlooked something, even small upgrades can add value. Present this information clearly to the appraiser, maintaining a positive attitude, to potentially improve your appraisal outcome.

5. Perform Research with a Realtor

A good realtor can provide substantial assistance when challenging a low appraisal. From accessing local comparable sales to verifying zoning, paperwork, and square footage accuracy, a realtor’s expertise can be invaluable in preparing a strong appraisal rebuttal.

6. Submit a Request for a Second Appraisal

After gathering supporting documentation, you can request a second home appraisal. Buyers can request another appraiser through their lender, while sellers may hire a second appraiser out of pocket. If a lender denies a second appraisal request, buyers can also pay for it themselves. Make sure your challenge is rooted in specific points of contention to increase the likelihood of a favorable outcome.

Ormond Beach Real Estate: Helping YOU on Your Housing Journey

Buying or selling a home can be challenging in the best of situations. Mike Glisson, a third-generation Native Floridian with deep family roots throughout Ormond Beach, is an experienced real estate agent ready to help buyers and sellers navigate the housing market in Ormond Beach and surrounding areas.