Low Home Appraisal Solutions For Home Buyers And Sellers

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This BLOG On Low Home Appraisal Solutions For Home Buyers And Sellers Was UPDATED On February 5th, 2019

What are Low Home Appraisal Solutions For Home Buyers And Sellers

A home appraisal is part of the mortgage approval process when borrowers apply for home loans.

  • An appraisal is one of the most important factors in getting a final mortgage approval
  • This article is geared towards first time home buyers to educate them on the appraisal process during the mortgage process and solutions to low home appraisal 
  • Just because buyers have the required down payment and are armed with a solid pre-approval does not mean that they are home free
  • The property under contract need to appraise out to the purchase price
  • Most of the time, most first time home buyers or seasoned home buyers do not have low home appraisal issues
  • But there are times where a low home appraisal can cause delays in the loan process
  • There are times when a low home appraisal becomes a deal-breaker

In this article, we will cover the various options homebuyers have when faced with a low home appraisal.

Pricing Home Right By Sellers

Most sellers who want to sell their homes consult with a professional licensed real estate agent.

  • The real estate agent normally recommends suggested listing price
  • The real estate agent normally does a market valuation study
  • This normally consists on recent comparable sales of similar and like properties of the subject property within a one square mile area

Market Value Analysis

How to analyze market values

The real estate agent may consult with appraisers or other realtor’s in doing the market analysis study and will recommend to the home seller a suggested listing price.

  • Most home sellers will also do their own market study
  • Eventually will come up with a listing price
  • There are sellers who feel that their home is worth much more than recent comparable sales
  • They list their homes at a higher market price
  • Listing a home higher than recent comparable sales may become an issue when the home is under contract if the home buyer is getting a mortgage
  • Every home buyer who gets a residential mortgage is required to have an appraisal done on the subject property
  • A low home appraisal is often a major issue when it comes to homes that are overpriced

An overpriced home does not mean that the home is not worth the value.

Custom And Unique Homes

Many home sellers may have customized their homes by having special amenities can encounter low home appraisal issues

The following amenities can not add value to the home:

  • outdoor kitchen, custom millwork
  • custom windows
  • custom flooring
  • high end electrical and plumbing fixtures

Other amenities that may add value to the home but will not affect a higher value on the property appraisal.

What Are Home Appraisers Mainly Concerned With

What Are Home Appraisers Mainly Concerned With

  • Residential mortgage appraisers are mainly concerned with similar and like properties within a one square mile radius
  • They do not take certain luxuries into account when giving the subject property a market appraised value
  • There are certain aspects to the subject property that the appraiser can add value and give a higher valuation such as the following
    • an additional adjustment for the subject property being a waterfront property
    • gulf course property
    • being backed on a green belt
    • being on a larger lot
  • There are many cases where buyers still want the home badly even with a low appraisal
  • Low home appraisal issues are not common
  • It normally happens ten percent of all residential mortgage loans I originate
  • Low Home Appraisal does cause delays in the mortgage process and can delay closing dates

Comparable Sales And Low Home Appraisal

Lenders will still fund a mortgage loan with a low home appraisal. But it all comes to money and funding.  Lenders will only go off the appraised value of the subject property.

  • For example, lets go over a case scenario:
    • Subject property purchase price is $120,000
    • Appraisal comes back at $100,000
    • The borrower is going through a FHA Loan
    • The lender will value the property at $100,000 and not the $120,000
  • If the home seller is not willing to reduce the purchase price down to the $100,000 and still wants $120,000 and the home buyer still wants the property, the home buyer will be required to come up with the 3.5% of the $100,000 appraised value plus the additional $20,000
  • However, when there is a low appraisal on a subject property, there are solutions where the deal can still go through if both parties, the home buyer and home seller, can come to terms

Solutions To Low Home Appraisal Issues

What are Solutions To Low Home Appraisal Issues

There are multiple solutions to low home appraisal issues.

  • If the appraisal comes in within a insignificant low appraisal value such as a matter of a few thousand, the home seller normally lowers the purchase price
  • If the home seller does not want to lower the purchase price, the home buyer can normally afford a few thousand increase if they really want the home
  • The issue comes in when the low appraisal is a substantial amount lower than the actual purchase price
  • Many times, a home buyer will walk away from the subject home purchase if the home seller does not lower the purchase price to the appraise value
  • However, if the home buyer is in love with the subject property and the home seller is not willing to lower the sales price of the home, then an appraisal rebuttal can be done

Appraisal Rebuttal To Contest Low Appraisal

Appraisal rebuttals are often difficult if you have no evidence to contest low home appraisal.

  • Mortgage loan originator needs to complete an appraisal rebuttal request form
  • Normally the seller’s real estate agent provides proof and completes the appraisal rebuttal form
  • It then gets submitted to the home buyer’s mortgage company
  • Things that the seller’s real estate agent needs to complete is a list of comparable recent sales that is similar to the subject property within a one square mile radius
  • There is a comment section where the seller’s realtor needs to complete as well for the reason of the appraisal rebuttal and why he or she feels the market valuation should be higher
  • Properties that are currently listed but not sold cannot be used as evidence and to justify the appraisal rebuttal
  • Only closed properties can be used
  • The properties needs to be recent sales and properties that are similar to the subject property as follows:
    • square footage
    • lot size
    • location
    • bedrooms
    • bathrooms
    • adjustments such as whether the property is a waterfront property or golf course property

Appraisal Rebuttal Request

What is the assessment of the overthrow request?

Once the form is completed and submitted to the home buyer’s mortgage loan originator, the mortgage loan originator will submit the completed appraisal rebuttal form to the Appraisal Management Company. The AMC will question the actual appraiser who did the home appraisal.

  • The appraiser will review the appraisal rebuttal and will make comments and submit the appraiser rebuttal form back to the supervisor of the Appraisal Management Company
  • The supervisor of the Appraisal Management Company will sign off on the final appraisal rebuttal
  • If the appraiser stands by his or her low home appraisal value, it will be noted and the appraiser’s comments will be attached justifying the low home appraisal
  • If the appraiser decides that the subject property warrants a higher appraisal valuation,  a modified appraisal with the new price adjustment will be issued
  • Appraisal rebuttals normally will delay the mortgage process for about one week

If Home Sellers Will Not Lower Sales Price On Low Appraisal

Most home sellers do want to work with home buyers in the event a low appraisal happens.

  • However, there are situations where home sellers either do not cooperate
  • There are sellers who do not want to lower the sales price or cannot lower the sales price because they just owe too much money on their current mortgage balance
  • Another solution to resolve a low home appraisal issue is to see whether a second appraisal is warranted
  • If the first appraiser and Appraisal Management Company were extremely unreasonable and buyers and sellers have justified comparable sales they feel a second appraisal is warranted, it may be another solution to solve the low home appraisal issue
  • Need the lender’s blessing in order to order a second appraisal and see whether the lender will even allow it
  • If there are not valid comparable sales and solid reasons to warrant a higher appraisal valuation, the second appraisal will be a waste of time and money

Other Creative Solutions To Low Appraisal Issues

What are other Creative Solutions To Low Appraisal Issues

Most home buyers get a sellers concession towards their closing costs on their home purchase.

  • Many times when I have low appraisal issues, one of the ways we resolve low appraisal issues is where both the home buyers and home sellers give up a little
  • The home buyer will give up their sellers concessions towards their closing costs and the home sellers will come down on the price of their home
  • If the home buyer really needs help with closing costs and giving up the sellers concession will affect their ability to close their loan, they can request a lender’s credit towards their closing costs on their home purchase

Lenders Credit Towards Closing Costs

Lenders can give borrowers a slightly higher mortgage rate in lieu give them a lenders credit towards closing costs. This can offset the home buyer’s closing costs or eliminate the closing costs altogether.

  • Getting a second mortgage from the home seller is normally not allowed so that possibility is out of the question.

All in all, if there is a will, there is a way.  Most low home appraisal issues gets resolved over time and if both the home buyers and home sellers can team up to resolve the low home appraisal issue, the deal will get done.

By Gustan Cho

www.gustancho.com

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