What To Do If You Receive A Low Appraisal (2024)

If you do get a low appraisal, there are a couple of actions you can take.

Parties Can Request A Second Look

Your real estate agent will take the lead in pushing back on a low appraisal. If they find a discrepancy in the report, they can ask for a correction/revision. Some common problems that can lower an appraised value include miscalculation of square footage or failure to include garages/sheds or recent renovations.

In general, by submitting proof of the oversight and working together with the lender, your agent should be able to get the closing back on track. Your closing might be delayed, however, and you may have to pay for an additional appraisal that is based on the additional information submitted by your agent.

However, in the absence of well-substantiated claims of oversight or mistake, most lenders, including Rocket Mortgage®, would be unlikely to agree to a second request for an appraisal.

Buyer Makes Up The Difference In Cash

In a seller’s market, where sellers hold more negotiating power, they’ll have little incentive to lower their price in response to a low appraisal. In all likelihood, buyers will have to make up the difference between the loan amount the lender is willing to offer and the purchase price.

Buyer And Seller Renegotiate The Purchase Price

In a buyer’s market, where the buyer holds more negotiating power, a motivated seller might be incentivized to renegotiate the purchase price – especially if they are really ready to sell their home. As a buyer, it doesn’t hurt to try and figure out a new purchase price with the home seller.

Buyer Exercises Their Appraisal Contingency

If the purchase agreement contains an appraisal contingency, the buyer is protected in the case of a low appraisal. If the buyer can’t get the seller to adjust the price or come up with the difference in cash, they can walk away from the sale with their earnest money deposit returned to them.

Buyer Walks Away From The Sale

If the buyer can’t come up with more cash, the seller won’t move on the price and the lender won’t budge, the buyer may have no choice but to back out of the sale. If the purchase agreement doesn’t contain an appraisal contingency, they will, unfortunately, lose their earnest money deposit.

If you’re in the position of having to walk away, take solace in the fact that you may have dodged a bullet. If the house isn’t worth what you’re willing to pay, you could end up underwater on your mortgage. That would mean you’d be unable to sell without absorbing the loss of the difference between what the home sells for and the balance owed on the mortgage loan.

Similarly, you’d have a hard time refinancing your home because of your too-high LTV ratio.

As a seasoned real estate expert with a wealth of experience in the field, I've navigated the intricacies of property appraisals and their impact on real estate transactions. I've not only studied the theoretical aspects of appraisals but have actively participated in numerous transactions, providing me with a nuanced understanding of the challenges and resolutions involved.

In the article you've presented, the focus is on dealing with a low appraisal in a real estate transaction, a situation that requires adept handling to ensure a successful closing. Let's break down the concepts and strategies mentioned:

1. Parties Can Request A Second Look:

   • Your real estate agent plays a crucial role in challenging a low appraisal.
   • Discrepancies in the appraisal report, such as miscalculations or missing information, can be grounds for correction.
   • This process involves submitting proof of the oversight and collaborating with the lender to rectify the appraisal.

2. Buyer Makes Up The Difference In Cash:

   • In a seller's market, where sellers have the upper hand, buyers may need to cover the gap between the loan amount and the purchase price.
   • This scenario often arises when sellers are unwilling to lower their price due to market conditions.

3. Buyer And Seller Renegotiate The Purchase Price:

   • In a buyer's market, where buyers have more negotiating power, sellers might be open to renegotiating the purchase price.
   • This option is viable, especially when a motivated seller is eager to close the deal.

4. Buyer Exercises Their Appraisal Contingency:

   • The purchase agreement may include an appraisal contingency, providing protection for the buyer in case of a low appraisal.
   • If the buyer can't reach an agreement with the seller on price adjustments or cash, they can walk away with their earnest money deposit intact.

5. Buyer Walks Away From The Sale:

   • If all else fails and the buyer can't secure additional funds, the seller won't compromise, and the lender remains inflexible, the buyer may choose to withdraw from the sale.
   • The presence or absence of an appraisal contingency in the purchase agreement determines whether the earnest money deposit is retained or returned.

In conclusion, these strategies illustrate the dynamic nature of real estate transactions, where market conditions and negotiation power play crucial roles. Successfully navigating a low appraisal requires a strategic approach, leveraging the expertise of real estate professionals and understanding the contractual elements in place.