What Happens When Home Appraisal Comes in Low?

Unfortunately with houses prices all over the place and bank owned properties bringing down prices in neighborhoods the real estate landscape is seeing more appraisals coming in below purchase price.  Here are the important things to realize what a home appraises low:

FHA Loan

If you are getting an FHA loan, the appraisal is good on the property for 120 days. If you are involved with purchasing a HUD home the original appraisal is used, otherwise if a home has already been appraised and the deal fell through the original appraiser would need to be approved by your lender and not be on their exclusionary list for you to be able to reuse the appraisal.  Most often a new (second) lender will require a new appraisal.   The FHA case number however, follows the property, which means that the lender will be able to see the history of the appraisal involved with that case number, according to Lynda Lawless with Fifth Third Mortgage.  Here are my tips and things to remember for FHA loans:

  • The appraisal is good for 120 days.
  • Have Realtor provide lender with additional comps to refute appraisal, if possible.
  • Purchaser can only get financing for the amount of the loan, less down payment, FHA required that the home appraise at or above the purchase price.
  • Seller would need to lower purchase price to match appraisal price if you exhaust all options.
Conventional Loan
A conventional loan is not as restrictive as an FHA loan, but you still must make changes to be able to close the deal.  Here are my tips and your options for conventional loans:
  • Have Realtor provide lender with additional comps to refute appraisal.
  • Lower purchase price to make up difference between appraisal price and purchase price.
  • Bring extra cash to closing to make up the difference between appraisal price and loan amount.
    • For example, if you have a $100,000 house and you were going to put 20% down then you would need to bring $20,000 for your down payment.  If the house only appraises at $90,000 and you still want to buy, but the seller won’t lower the price price you would need to bring $30,000 to closing.
The important thing to remember about appraisals are that they are used to protect the consumer and the bank to make sure that the consumer is not overpaying for a property and that the bank in not over lending.  Just like most things however, they are subjective and human error occurs.  I suggest trying your best to see if you can rebut the appraisal if you are seriously concerned the home was undervalued, otherwise I would try to get the seller to come down on the price to make sure you are truly paying “market value” and not a penny more!

Shanna Lafontaine is a Realtor who works the Dublin, Hilliard, Powell, Worthington, and surrounding Columbus areas helping both Buyers and Sellers.