What Happens When a Home Doesn’t Appraise?
If you are in the process of buying a home, you probably have a lot of unanswered questions. One common concern buyers and sellers share is whether the home will appraise at the contract price.
Everyone involved in the transaction hopes the appraisal will match the agreed-upon purchase price. But sometimes it doesn’t. When a home appraises for less than the contract price, it can create challenges for both the buyer and seller.
The good news is that there are often ways to address a low appraisal—but understanding why the appraisal came in low is the first step. Below are five common reasons a home may not appraise for the expected value.
1. Limited Comparable Sales (“Comps”)
Appraisers rely heavily on recent sales of similar homes in the area to determine value. If the home is unique or located in a neighborhood with few recent comparable sales, the appraiser may have to expand the search area.
When that happens, the appraiser may end up comparing homes from different neighborhoods or markets, which can significantly affect the valuation.
2. Below-Grade Living Space
Finished basements can be a major selling point for buyers. However, appraisers typically value below-grade square footage at a lower rate than above-grade living space.
Even if the basement is beautifully finished, it may not add as much value to the appraisal as homeowners expect.
3. Luxury Features That Don’t Translate to Value
Features like swimming pools or professional landscaping can make a property more attractive and enjoyable. However, these features often do not increase the appraised value by the full amount they cost to install.
While they may help a home sell faster or attract more buyers, they rarely add dollar-for-dollar value in an appraisal.
4. Rapidly Rising Home Prices
In fast-moving markets, home prices can increase more quickly than recent comparable sales reflect. When this happens, the appraisal may lag behind the current market reality.
Sometimes buyers or agents will ask the appraiser to apply a market adjustment to account for rising prices, but there is no guarantee the appraiser will do so.
5. Appraisal Errors
Like any profession, mistakes can happen. Appraisers are human, and occasionally an appraisal may contain errors or questionable assumptions.
It is also important to remember that the lender—not the buyer or seller—selects the appraiser, and lenders typically rely on the appraiser’s opinion when making lending decisions.
If there are concerns about the appraisal, your real estate team may be able to challenge the report or request a reconsideration of value.
Buying or Selling a Home? We’re Here to Help.
Real estate transactions can feel overwhelming, especially when unexpected issues like a low appraisal arise. The right guidance can make all the difference.
If you are buying or selling a home and have questions about the process, Lauren Jackson Law is here to help. With the right team on your side, the process does not have to be complicated.
Contact our office today to learn how we can help protect your interests in your next real estate transaction.