What To Do In Cases Of Low Appraisals In Home Purchase

This BLOG On What To Do In Cases Of Low Appraisals In Home Purchase Was UPDATED On October 3rd, 2017

Appraisals are mandatory for both refinances and purchase mortgage loans.

  • Appraisals are arbitrary market values of subject properties.
  • Residential appraisals are based on recent property sales of similar and like properties within a one mile perimeter of the subject property. 
  • Most properties that is listed are normally priced right.
  • However, there are cases where home buyers enter into a purchase real estate contract and the appraisal comes in lower than the actual purchase price. 
  • When situations like these happen, there is normally a delay in closing and the deal goes back to the drawing board.

Situations Where Appraisals Come In At Lower Value Than Purchase Contract

When an appraisal comes in no more than 5% of the purchase real estate contract, the majority of the sellers will normally reduce the sales price to the appraised value.

  • However, there are many cases where the appraisal comes in 10% or more lower than the purchase real estate contract. 
  • On situations like these, the buyer has the choice of walking away from the purchase real estate contract .
  • Or asking the seller to lower the purchase price to the actual appraised value. 
  • The seller normally will request the buyers mortgage lender to do a appraisal rebuttal.
  • This is normally done by the seller’s real estate agent doing his or her own due diligence and gathering comparable sales that has recently closed that is nearby the subject property. 
  • The seller’s real estate agent will submit the recent sold comparable to the buyer’s mortgage lender.
  • The lender will complete an appraisal rebuttal form along with the proper comparable to the Appraisal Management Company. 
  • The Appraisal Management Company will then contact the appraiser and advise the appraiser to re-evaluate the subject property and review the comparable that the seller’s real estate agent has provided. 
  • The appraiser will then review the rebuttal request and make changes if the evidence warrants it
  • The appraiser will be firm on his original market value if he or she can justify the comparable provided do not justify a higher value. 
  • The appraiser will reply to the appraisal rebuttal and turn his report back to the Appraisal Management Company. 
  • The Appraisal Management Company resident supervising appraiser will review the rebuttal report and will sign off on it. 
  • The appraisal rebuttal request gets resubmitted to the mortgage lender. 
  • This process normally takes three to five business days.

Low Appraisals In Home Purchase Rebuttals

Appraisers are professionals who take their jobs and their duties extremely seriously and are extremely regulated.

  • Very rarely would an appraiser make a mistake. 
  • Most appraisers do understand the importance of an appraisal.
  • Try very hard to come in at the requested target value as long as they can justify it. 
  •  Be aware, very seldom do I get an appraisal value raised from an appraisal rebuttal. 
  • Almost every time I do an appraisal rebuttal, it comes back at the original appraised value.  
  • Most sellers will come down on their asking price once they see that the buyer and mortgage company did everything possible in trying to increase the appraised value via appraisal rebuttal.  
  • Every single mortgage file I had lower appraisal values than the actual purchase price have closed. 
  • Sellers have come down on their asking price to meet the appraised value of subject property .
  • Or on some cases, the buyers and sellers came to a compromise where the buyer paid a little more than the appraised value and the sellers lower their asking price.

Appraisal Review By Mortgage Lenders

Every conventional and FHA appraisal goes through an appraisal review by the subject property’s mortgage lender’s appraisal review department. Low Appraisals In Home Purchase is not the only issue home buyers can run into by lenders.

  • Most appraisals gets the appraisal review department’s blessing but there are cases where the appraisal review department will red flag an appraisal. 
  • I had several cases this year where a mortgage loan borrower’s appraisal got red flagged. 
  • On one situation, the appraisal got red flagged because the comps were too far away and the subject property had five lots. 
  • The appraiser had to make multiple adjustments and the mortgage lender will not accept the appraisal without a second appraisal. 
  • On this particular case, a field review was ordered where a second appraisal company had to do a drive by appraisal. 
  • Luckily, the field review justified the first appraisal and the deal went through.

Lender Not Honoring Appraisal

The second case scenario I had was a case where the appraisal review department of a mortgage lender has slammed the appraised value of a property.

  • The appraisal came in at $360,000 but the internal appraisal review underwriter slashed the value to $320,000. 
  • We did the appraisal rebuttal to have the Appraisal Management Company to rejustify the $360,000 value and they did rejustify it but the lender still deemed the subject property value at $320,000 due to comps being over 5 miles that was used as comparable to the subject property. 

On this particular deal, the seller and buyer renegotiated the purchase price to $335,000 and the deal ended up closing.

Home Buyers needing more information on this topic or need a direct lender with no lender overlays on government and/or conventional loans, please contact The Gustan Cho Team at USA Mortgage at 1-800-900-8569 or text us at 262-716-8151 for faster response. Our email address is gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, and holidays.

This BLOG On Low Appraisals In Home Purchase was updated on October 3rd, 2017

Gustan Cho NMLS ID # 873293

Related> Disputing A Low Appraisal

Related> Low Appraisals

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

Comments are closed.