A home appraisal is crucial for both the seller and buyer. The seller will know how the value of a property is determined if he understands the appraisal process. The buyer, on the other hand, needs a home appraisal when getting a mortgage. 

A low valuation can break the deal even after both parties have already agreed for the home price. Let's say the listing price is $300,000, and the buyer offers $265,000, but they reached an agreement for $280,000. Then, the home appraisal is $250,000, which is lower than the agreed price. It will also be the maximum mortgage amount the lender is ready to offer. 

This scenario may cause the seller to not lower the price again, and the buyer may not have sufficient money to cover the deficit. In consequence, the deal collapses. That’s why you should avoid a low home appraisal as far as possible. Keep in mind this guide to help you avoid this unfortunate scenario. 

Why Do Home Appraisals Turn Out Low?

There are several factors that result in a low valuation of a property. Take note of these causes and how to avoid them. 

Volatile Real Estate Market

The rapid change in market conditions can lower the value of your house. Comps - which are used by appraisers to determine the property’s market value - may cease being relevant if the present market conditions are different from what they were a few weeks or months ago. 

How to avoid: Get a pulse on how slow or fast the values of properties change in the area. Study market seasonality because a particular market tends to perform worse during some seasons and better during others. Also, read or listen to market forecasts, and work closely with your real estate agent. 

Shortage of Recent Comparables

A lack of recent comps means there are not enough references for appraisers to determine the values of properties. This scenario might cause your home to turn out low value after the appraisal. 

In an area where development is slow or a location where properties rarely sold, you can expect that there will be a shortage of comps. Moreover, in a market where comps age fast, appraisers may not have enough recent sales of comparable houses to choose from during the appraisal process. This factor can have an effect on the value of your home. 

How to avoid: Know how many recent home sales in the neighborhood and determine the seasons during which the sales typically peak. List your property during these times of the year. 

The Appearance of the Property

Appraisers will easily notice an unsightly and dirty property and give it a thumbs-down during the appraisal process. 

How to avoid: Prepare your home before listing it. Hire a professional to clean the property and make it more appealing for both the potential buyers and appraisers. Also, make sure that the yard, garage, basement, and attic look good and mint condition. You can also consider having a new paint on the house for the purpose of aesthetics. 

Unrealistic Expectations

Sometimes we have unrealistic ideas of value to a property we hold dear. If you think your home is located in your preferred neighborhood or that it has been long a family property, those personal sentiments of yours may not sway the appraiser from giving it a lower valuation. 

Moreover, you need to understand that human-error may occur during the appraisal. Sometimes appraisers are more inclined to consider the comps and stats, and at other times they tend to look more at the appearance of the property. 

How to avoid: Be present when the appraiser inspects the property and speak with him about the recent comps and stats in the area. Also, consider hiring a qualified appraiser before listing your home. Use that pre=listing appraisal when setting a price on the property, or give a copy of that pre-listing appraisal to the buyer’s appraiser before inspecting the property. 

What to Do After a Low Valuation?

The homebuyer and seller has some options when the appraisal comes in lower than expected. 

Buyer’s options:

• Talk with the seller and offer a lower price

• Cover the shortfall between the home price and the mortgage amount

• Dispute the low valuation of the property

• Work with a new lender and get a fresh appraisal

• Drop the transaction

Seller’s Options:

• Lower the listing price to make the buyer sign the contract

• Request another appraisal 

• Consider a makeover of the property

• Take the property off the market

Takeaway

An appraisal is crucial when selling or buying a home. Make sure you know how this process works and what to do to avoid a low appraisal and when the appraiser gives a low valuation of the property. Follow the tips we have discussed in this blog article for that purpose.