Purchasing a home is a major investment, and for most people, that means seeking a mortgage to finance the purchase. While home appraisals aren’t often necessary when the buyer is a cash buyer (meaning they don’t need a mortgage), all mortgage companies require an appraisal before committing to lend a buyer money to buy the property.
A home appraisal helps both the buyer and the lender understand the fair market value of the property. However, sometimes home appraisals come in lower than expected, which can have a significant impact on the home-buying process. This article will discuss what happens if your home appraisal comes in low, the causes of low appraisals, and what you can do if your home appraisal is low.
What is a home appraisal?
A home appraisal is an unbiased estimate of the fair market value of a property conducted by a licensed appraiser. The appraisal takes into consideration various factors, including the property’s location, size, age, condition, and any recent renovations. The appraiser compares the property with similar properties in the area that have sold recently to determine its value. The purpose of the appraisal is to protect the buyer and lender by ensuring that the property’s value matches the purchase price.
What does a low home appraisal mean?
A low home appraisal means that the appraised value of the property is lower than the agreed-upon purchase price. A low appraisal can impact the home buying process in several ways, such as affecting the mortgage terms or causing the sale to fall through entirely.
Why do home appraisals come in low? (What causes low appraisals?)
Several factors can cause a home appraisal to come in lower than expected, including:
- Market conditions: A market downturn or a lack of recent sales in the area can affect the appraised value of a property. The opposite can also be the case, where the market has dramatically improved but the most recent sales in the area were a while ago and low.
- Overpriced property: If the seller or the listing agent overpriced the property, the appraised value might come in lower than the asking price, or if two bidders had a bidding war and “artificially” inflated the price.
- Inaccurate information: If the appraiser uses outdated or incorrect information or does not account for relevant property features, the appraisal may come in lower than expected.
- Poor property condition: The property’s poor condition, such as outdated appliances, leaks, or structural issues, can lower the appraisal value.
- Appraiser’s experience: An appraiser that is inexperienced or unfamiliar with the local market may not have the necessary knowledge to accurately appraise the property, which can result in a low appraisal.
How often do home appraisals come in low?
Low home appraisals are not uncommon. According to a survey conducted by the National Association of Realtors, 22% of real estate transactions in 2021 were impacted by a low appraisal, 11% of which were terminated. However, be aware that this was during the market boom, where almost all homes were going for much more than the asking price, so low appraisals were much more likely to occur. In 2019, 10% of sales were impacted. That said, around 1 in 10 sales are affected by a low appraisal.
What happens if the appraisal is lower than the offer?
If the appraisal is lower than the offer, it can impact the home-buying process in several ways. The most common scenarios include:
- Renegotiation of the sale price: The buyer and the seller can agree to renegotiate the sale price based on the appraised value.
- The buyer pays the difference in cash: If the lender approves a mortgage based on the appraised value, the buyer can choose to pay the difference between the appraisal value and the purchase price in cash.
- The sale falls through: If the seller is unwilling to renegotiate the sale price, and the buyer cannot or chooses not to pay the difference, the sale may fall through entirely.
What can you do if your home appraisal is low?
If your home appraisal comes in low, there are several steps you can take to address the situation:
- Review the appraisal report: Carefully review the appraisal report to ensure that all the information provided is accurate and up-to-date. If you find any errors or discrepancies, contact the appraiser and request a correction.
- Get a second opinion: Consider hiring another appraiser to conduct a second appraisal of the property. This can help you determine if the first appraisal was accurate and provide additional information to support your case.
- Renegotiate the sale price: If the appraisal value is lower than the purchase price, you can renegotiate the sale price. This can help you avoid paying more than the property is worth if you are the buyer, or avoid losing the sale if you are the seller.
- Appeal the appraisal: If you believe that the appraisal was inaccurate or unfair, you can appeal the appraisal with the lender. This process involves providing additional information and evidence to support your case and can result in a revised appraisal.
- Walk away from the sale: If you are unable to renegotiate the sale price or the appraisal value is significantly lower than the purchase price, you may need to walk away from the sale.
What if the sale falls through?
If the sale falls through due to a low appraisal, it can be a frustrating and disappointing experience. However, there are still options available to you as a homeowner. One option to consider is looking for a cash buyer who does not need an official appraisal.
Cash buyers are usually investors who buy properties for cash, with the intention of fixing them up and selling them for a profit or using them as rental property. Because they are not relying on a bank loan, they do not need to go through the traditional appraisal process. This means that they can often close on a property more quickly than a traditional buyer.
If you are looking for a cash buyer in Massachusetts, our company specializes in buying homes for cash. We can give you a cash offer on your home, without the need for an official appraisal or any repairs. All you need to do is contact us about your property and we will give you our best cash offer. If you want to move forward, we will assess the property more seriously and give you our final offer. If you accept, we can close on the property in as little as 2-3 weeks.
Selling your home to a cash buyer can be a great option if you need to sell quickly or if you are looking for a hassle-free sale. Because we are investors, we are not looking for a perfect property. We can take on properties that need repairs, have code violations, or have other issues that might make it difficult to sell through traditional channels.
Sell Your Home After a Low Appraisal
If you are considering selling your home to a cash buyer in Massachusetts, we would be happy to discuss your options with you. We understand that every situation is unique and we are committed to finding the best solution for you. Contact us today to learn more about our cash-buying process and to get a free, no-obligation cash offer on your property.