Nervous sellers ask, “Will my house appraise for the selling price?”
Savvy sellers know that if their home is priced right, they stand a very good chance of having it appraise accordingly, and keep the sale on track.
In fact, Tamara Bourne, a top-selling agent in Atlanta’s South Metro who sells 84% more properties than her peers in Peachtree City, says she looks at a home like an appraiser does when she goes to a listing property. This enables her to determine the right price in the first place.
And, as she emphasizes, “Our homes appraise — period.”
If you’re concerned about a low valuation, we’ve gathered the best advice from Bourne and other industry experts on how you can prepare for your appraisal. With their combined knowledge and our extensive research, this post will explain what an appraisal covers, why it’s necessary, and give you 10 expert tips to be more certain your house will appraise for its selling price.
When does a home appraisal happen and why?
Whenever a buyer is financing the purchase of a home or refinancing a mortgage, an appraisal of the property is required in order to assure the lender that the value of the property matches the amount of the loan, according to the Appraisal Institute, the nation’s largest professional association of real estate appraisers.
Lenders want assurance that the buyer isn’t over-borrowing because the home serves as collateral for the mortgage. If the borrower defaults on the mortgage, the lender wants protection against lending more than it might be able to recover.
The process involves an impartial qualified appraiser who is licensed or certified. The appraiser collects information and data in order to determine the property’s value. Some of the factors under consideration include:
- Hazards, such as FEMA flood zones
- The neighborhood
- Size, age, and condition of the property
- Construction details (type of foundation, type of materials used)
- Improvements made to the property
- Features, such as swimming pools or an accessory dwelling unit (ADU)
FHA and VA loans have additional requirements an appraiser must evaluate, most of which relate to safety and soundness.
Appraisers then compare their findings with appraisal and market data, such as Fannie Mae’s Collateral Underwriter, and use comparative market analysis (CMA), incorporating a pool of recently sold comparable properties (or “comps” for short) that mirror your house in size, square footage, number of beds and baths, and location, in order to determine your home’s current fair market value.
Paul Grossmeier, CEO of Grossmeier Appraisal Service, LLC, in Mukwonago, Wisconsin, who has been appraising real estate for over 30 years, explains that appraisers are “using historical data to estimate present-day value.” He often consults the Marshall & Swift Residential Cost Handbook, which provides historical cost indices for a wide variety of housing styles, the classifications for building quality, corresponding descriptions and example photographs.
Are low appraisals common?
“You can’t always avoid [a low appraisal],” says Megan Walters, a top-rated agent who sells homes 40% faster than the average agent in her Columbia, Missouri, market. However, most appraisals come in at the right price. According to Fannie Mae, in general, appraisals come in below contract only about 8% of the time. Some estimates range from 7% to 11% in average years.
Data from CoreLogic indicates that in May 2021, about 20% of home appraisals came in lower than the sales price. This reflects a larger number than is typically seen, and is assumed to be a result of the pandemic. As supporting evidence, CoreLogic provides documentation indicating that only 7% of homes sold in May 2020 had a contract price that was higher than their appraised value.
How much will your house appraise for and will it appraise for (at least) the purchase price? If you’re concerned about where your house might appraise, you can check its value by using HomeLight’s Home Value Estimator. Two minutes and seven questions are all it takes to get a ballpark estimate of what your home might be worth right now.
What can cause my home to appraise low?
Many factors can result in a low appraisal. Some reasons that your home might not appraise as well as you’d like include:
Sluggish housing market, which results when values make a sharp downturn (a la 2008). Cold markets with excess inventory and few buyers results in a lack of good comps, making it difficult to get an accurate market value of your home.
Rising market, when turnover is too fast for comparable properties to keep pace. In this situation, “the market is moving too fast,” Walter explains. Low appraisals occur in markets where prices are rising, but appraised home values aren’t keeping up with how quickly homes are selling or the higher prices they command, resulting in lower appraised values that don’t reflect the industry change.
For example, it took a median of 30 days to close on a home in July 2021, according to a National Association of Realtors survey. Low appraisals are common in a hot seller’s market because appraisals on comparable properties may have closed before the market changed.
“With a shortage of inventory,” Grossmeier explains, “there’s not a lot of data to establish the rate of appreciation.” When basing an appraisal on the most current sales available, he says some appraisers may overshoot the value. However, they should make a “time adjustment” to account for lags in data.
Appraisers who are new to the profession or lack local market knowledge. If an appraiser is new and lacks experience writing an appraisal on properties like yours, it could result in a low valuation. Similarly, if the appraiser is spread too thin covering a vast amount of territory, they may not know specifics about your local market that might boost your home’s value.
“An appraiser needs to know the local market,” Grossmeier insists. He believes school districts are critical because they’re three-quarters of your tax bill. To pull a good comp, he says the appraiser should select recent sales in the “most similar municipal setting possible” because it would appeal to the same market segment.
Bad comps. Maybe there was a foreclosure in the area, or a flip. Perhaps a good comp wasn’t recorded when your home was being appraised.
No comps. Although Walters says not having comps can be a detriment to your appraisal, most appraisers manage to find something. The question is, how comparable is it?
You haven’t kept up with maintenance so the house is in poor condition. If you skip routine maintenance, your house could lose 10% of its value.
Your home was over-improved for the area. If your house has too many renovations, upgrades, or additions, you may not get a good return on your investment, especially if you haven’t been in the home very long. Excessive improvements may attract buyers, but don’t expect them to pay for all the work you’ve done on your home.
Price was set too high. “Price is key,” Walter insists. Some homeowners overprice their own house based on the “endowment effect,” an emotional bias that makes you value something more highly than its true worth.
10 expert tips to help avoid a low valuation
There are some things you can do to help ensure that your appraisal reflects the true value of your home. Be proactive.
1. Make a list of features and recent improvements you’ve made to the property
“A lot of times an appraiser will come and look at an air conditioner, and they’ll see the age on it, or will check the permits when they pull permits,” says Paul Fonseca, a top-selling agent in Fort Myers, Florida. “But it’s different when you tell them, ‘This was just put in, and it’s a Trane air conditioner, and it was $7,000. And we just got a new roof in the last year, and it cost this much.”
Before-and-after photos are a bonus. So are receipts. Having receipts and renovation paperwork handy can help the appraiser adjust values accordingly, says Santiago Valdez, a top-selling Chicago agent who’s sold 68% more properties than his peers.
2. Provide maintenance records
The lack of routine maintenance can cost you 10% on the sales price. Let the appraiser know you’re on top of things.
3. Get a comparative market analysis
“It’s basically a free appraisal,” Walters says. For a comparative market analysis, real estate agents compile a list of sales of homes similar in age, size, and style, typically within a one-mile radius of your home. This document indicates averages and where your house fits in the range of sales prices. “It’s a good tool for pricing.”
4. Get a pre-listing appraisal
“Sellers can get an appraisal done before they put their house on the market,” Grossmeier explains. He says doing a pre-listing appraisal will give them an EPO (easy price option) indicating a value range using current data. This can be particularly important for unique properties that don’t have many comps, but for the average home with lots of comps, Walters advises her clients not to spend the extra money.
5. Check that the appraiser is highly qualified
The buyer’s lender usually selects the appraiser, but you still want to make sure the person is a qualified appraiser with a designation from a recognized professional appraiser organization. The appraiser should be licensed or certified by the state.
6. Provide a list of comps
Your agent will prepare a package of useful information for the appraiser, including a list of recent comps in your neighborhood.
7. Provide a CMA or pre-listing appraisal
“Ninety percent of our work is research,” Grossmeier reveals. Why not make their job a little easier by sharing your documentation?
8. Make sure your home is clean and tidy
Officially, it has no bearing on the appraised value of your home, but it can make access easier and show off features better if it’s clean and orderly. Bourne focuses on paint, power-washing, curb appeal, decluttering and depersonalizing.
9. Learn how different loan requirements can impact an appraisal
FHA and VA loans have stricter requirements for the appraisal, as well as different underwriting guidelines. These might include requirements to upgrade outdated two-prong outlets, more attention on wood rot and earth-to-wood contact, and other detailed items, such as the need to replace single pull-chain light bulb sockets in a closet, crawlspace, or attic.
The different government agency appraisal requirements vary slightly. To see a comprehensive overview of the FHA loan requirements, HUD provides a 21-page handbook on appraisal guidelines.
10. Know your options for challenging a low appraisal
It can be difficult to challenge a low appraisal since “the seller won’t know the appraised value,” Walters points out. That’s because the lender hires the appraiser and is required by federal law to provide a copy of the appraisal report to the buyer, not the seller, according to the Consumer Financial Protection Bureau.
The seller’s agent can request a copy of the report from the buyer’s agent. If there are inaccuracies, missed features, or incorrect information, the seller’s agent can then contact the lender to provide documentation proving the seller’s claims about the property.
Part of the challenge process can include requesting a reconsideration of value (ROV), which allows the seller or buyer to appeal to the lender challenging the property value determined by the appraiser. The ROV allows either party to point out what they consider errors on the appraisal report.
“You can challenge the comps,” Walters says. You can ask the appraiser to make data corrections or consider additional information. You can also request that the lender order an appraisal review or a second appraisal, but the lender doesn’t have to agree.
Q&A – What else sellers should know about home appraisals
- Does a house have to appraise for the selling price?
No, but it should appraise for the loan amount. The financed price is the maximum amount a lender will loan relative to the home’s value (loan-to-value ratio). For example, if the LTV is 80%, it would require 20% down payment. In similar terms, Walters explains that if a house is priced at $200,000 but appraises for only $180,000, the buyer would have to cover the “appraisal gap” by paying an extra $20,000 out of pocket because the lender will only finance the appraised value.
- Can a house sell for more than the appraisal?
Yes, especially in a seller’s market when inventory is low and competition is high, as long as the buyer is willing to bring cash to cover the appraisal gap, Walters notes. If the buyer can afford it, knowing that they’ll have to make up the LTV difference out of pocket and if they stay in the home long enough to gain sufficient equity (at least five years), it may make sense for a buyer to pay more than the house appraises.
- Can the seller back out if the appraised value is too low?
Most of the time, the answer is “no.” Once the seller accepts a buyer’s offer, it’s a breach of contract to back out. However, some contingencies specified in the contract, such as new home contingency, appraisal contingencies, or home inspection contingencies, may offer an out.
- What are the options if the appraised value is too low?
Walter lists several: “The seller can lower the price; the buyer can bring cash; they can come to a 50/50 agreement [where the seller lowers the price some and the buyer brings some cash]; or the agent can give up some commission.”
- Do sellers usually lower their asking price if the appraised value is lower?
If an appraisal comes in low, a seller might lower the price to complete the sale. “The appraisal isn’t low,” Grossmeier elaborates. “It’s based on market research. The seller can lower the price to match market value.” If a seller isn’t willing to renegotiate, it can result in a broken sale. However, in a seller’s market, there may be other buyers waiting in the wings, so the seller may not be so interested in lowering the price.
- What should a seller ask a real estate agent to make sure the asking price will match the appraised value?
“Ask the agent where their comps come from,” Walters advises. “You want to be sure they’re not over-promising to get the listing.” A top agent should be transparent and set realistic expectations.
Pricing it right is the best way to avoid a low appraisal.
- Megan Walters
Real Estate Agent
Real Estate Agent at House of Brokers
Currently accepting new clients
- Years of Experience
- Average Price Point
- Single Family Homes
Bottom line — it all starts with the right listing price strategy
As Grossmeier says, “Most appraisers don’t care what the home’s value is; they just look at the data.” But a seller does care what the home’s value is and wants the appraisal to reflect that.
Many outside factors that impact an appraisal are beyond the homeowner’s control. However, making sure your home is in tip-top shape and that the appraiser has access to everything, including a list of recent upgrades, are a couple things the seller can manage.
Another thing in the seller’s control — which happens to be the most important factor in procuring an appraisal in line with the selling price — is to set the price accordingly. Recognizing that “everyone has a figure they need to hit,” Walters maintains that, “Pricing it right is the best way to avoid a low appraisal.”
One of the best ways to make sure your home is priced right is to partner with a top real estate agent. A top-rated agent can provide a full comparative market analysis and will know your neighborhood.
You can find a top agent who knows your neighborhood by using HomeLight’s Agent Match. This free tool analyzes more than 27 million transactions and thousands of reviews to find an experienced agent who will help sell your home faster and for more money. HomeLight’s data indicates that the top 5% of real estate agents in the U.S. sell homes for as much as 10% higher than the average real estate agent.
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