It’s an old joke: where a tax assessor sees a mansion, an appraiser sees a shack. It’s obviously an exaggeration, but low appraisals are something sellers (and buyers) worry about with good reason. A buyer’s lender requires an independent appraisal because they need to know the value of your home before giving the buyer a mortgage. But what happens when the appraisal is lower than the asking price? Low appraisals can be deal-killers, but they don’t have to be. With creativity and flexibility, there are several ways to make a sale work for buyers and sellers alike when the appraisal and listing price don’t mesh.
What Is a Home Appraisal?
Mortgage lenders require an independent expert to establish your property’s value before they give buyers a loan. An appraisal is a way to determine a fair price, but it can be behind the curve in a seller’s market. An appraisal is similar to the “comps” your real estate agent establishes, but it’s completed by an individual who doesn’t have a stake in the sale. A home appraisal usually takes 2 to 4 hours and costs around $400. The buyer covers the cost of the appraisal required by the lender. Because the buyer “owns” the report, they’re not required to share the number with the seller. Instead, they’ll simply inform the seller’s agent if the appraisal comes in at or above the listing price. If the estimate comes in low, the buyer share the report, using it as a starting point for negotiations. The appraiser takes into account:
- Your home’s age and condition
- Square footage and acreage
- Location (including market conditions in your neighborhood)
- Additions and renovations
What Is The Role of a Licensed Appraiser?
Home appraisers are licensed by the state. Virginia requires at least 1,000 hours of appraisal experience to earn a license. Certified appraisers must log even more hours. We expect appraisers to be unbiased, and buyers and sellers can’t interfere with the appraisal process. An appraiser differs from a home inspector who focuses on the details and lets buyers know about potential issues they may need to deal with. Unlike an appraisal, a home inspection is not required for a mortgage. However, appraisers do cover essential areas, including the foundation, roof, plumbing and electrical system. Appraisers generally take comparative information from within one or two miles of your property, going back three or four months. The distance and timeline may be expanded for rural properties because of fewer comparable listings.
How Can A Listing Agent Help Secure a Fair Appraisal?
Licensed appraisers have the skill sets and experience to do their job. However, they’re not always familiar with the ins and outs of a home or community. That’s why a listing agent needs to get them the information they need to make a fair evaluation. Appraisers don’t always know the neighborhood and may miss the gems and amenities that make a community highly desirable. Appraisers may overlook improvements like a new roof, HVAC system, or windows. Elements like these are not always obvious but can significantly impact pricing. Your listing agent can help by creating a document highlighting less noticeable improvements and amenities for the appraiser.
What Can I Do If My Appraisal Comes In Too Low?
If the appraisal comes in lower than the listing price, there are generally three options:
- The buyer can request a second opinion from another licensed appraiser.
- The buyer can cover the difference in cash (we saw this regularly in Northern Virginia during the hot market in the last year).
- Sellers may be willing to lower the price. Price drops are rare in a seller’s market, but sellers may be more flexible as the housing market cools.
While the Northern Virginia real estate market is cooling off a bit as interest rates rise, prices remain high compared with other areas of the country. Managing a low appraisal requires skilled negotiation and communication on both sides of the deal. That’s why it’s so important to have a seasoned real estate agent on your side. Realtor Yvonne Holland has walked buyers and sellers through the appraisal process during highs and lows in the market. Her experience and market knowledge are hard to beat. If you’re a seller, Yvonne will help you find the “just right” listing price for your home based on thorough research and decades of expertise. As a listing agent, Yvonne also creates a detailed book for the appraiser, letting them know about less obvious details and improvements in your home and highlighting amenities in your neighborhood. If the appraisal still comes in lower than expected, she’ll help you pivot and move forward to get the best price for your home.