When buying or selling a home, one crucial step in the process is the appraisal. This assessment determines the property’s market value and can significantly influence the final selling price of your property.
But what happens when an appraisal comes in lower than expected? How often do appraisals come up short? In this blog post, we will explore this question and look at what happens when your appraisal value is less than expected.
Understanding Home Valuation vs Appraisal
Before diving into whether low appraisals are common, it’s essential to understand the difference between home valuation and appraisal. So let’s first understand the main differences between the appraisal value of your home and its actual market worth.
Home Valuation
Home valuation is a broad term that refers to estimating a property’s market value. Various methods can be used for this purpose, including:
- Comparative Market Analysis (CMA): Real estate agents often use CMAs to estimate a home’s value based on recent sales of similar properties in the area.
- Automated Valuation Models (AVMs): These are computer-generated estimates that use algorithms and data from public records.
- Online Valuation Tools: Websites like Zillow offer instant home value estimates using AVMs.
Appraisal
An appraisal is a professional assessment conducted by a licensed appraiser to determine a property’s fair market value. Unlike other valuation methods, an appraisal involves an in-depth analysis of various factors, including:
- The property’s condition
- Recent sales of comparable homes
- Location and neighborhood
- Market trends
Appraisals are typically required by lenders during the mortgage approval process to ensure that they are not lending more than the property’s worth.
Why Do Appraisals Come Up Short?
Several factors can contribute to an appraisal coming in lower than expected:
Market Conditions
Real estate markets can be volatile, with prices fluctuating based on supply and demand. If there has been a recent downturn or if comparable sales have decreased, it could result in a lower appraisal.
Overpricing by Sellers
Sometimes sellers set the asking price too high based on emotional attachment or misinformation about their home’s worth. When an appraiser evaluates the property objectively, they may find that it doesn’t justify the higher price tag.
Condition of the Property
The condition of a home plays a significant role in its appraised value. Issues such as outdated systems, structural problems, or needed repairs can lead to a lower appraisal.
Inaccurate Comparables
Appraisers rely heavily on comparable sales (comps) to determine a home’s value. If there aren’t enough recent comps or if they aren’t truly comparable due to differences in size, condition, or location, it could affect the appraisal outcome.
How Common Are Low Appraisals?
While low appraisals do happen, they are not exceedingly common. According to data from Fannie Mae and Freddie Mac, about 8% of appraisals come in below contract price. However, this percentage can vary depending on market conditions and geographic location.
What To Do If Your Appraisal Comes Up Short?
A low appraisal doesn’t necessarily mean that your deal will fall through. Here are some steps you can take:
Review The Appraisal Report
Carefully review the report for any errors or omissions. Sometimes mistakes happen, such as incorrect square footage or missed upgrades that could impact the value.
Request A Reconsideration Of Value (ROV)
If you believe there were errors or overlooked comparables in your report, you can request an ROV from your lender. Provide additional evidence supporting your case for why you think your property is worth more than what was appraised.
Negotiate With The Seller
If you’re buying and receive a low appraisal but still want the property at its original price point – consider negotiating with sellers who might be willing either reduce their asking prices accordingly; alternatively splitting difference between both parties involved!
Seek A Second Opinion
In some cases where initial findings seem questionable – obtaining another independent evaluation may help clarify discrepancies found within first assessment conducted by different professional altogether!
Conclusion: Home Valuation vs Appraisal – Navigating The Process
Understanding differences between home valuation vs appraisal is crucial to navigating real estate transactions successfully! While low appraisals aren’t exceedingly common – knowing what factors contribute to them helps you identify proactive steps to address issues that arise. This ensures a smoother experience overall, whether you are buying or selling a property!
By staying informed about your local area, your realtor is your number one ally in achieving your desired outcome for your real estate transaction.
I ensure I am equipped to handle challenges head-on by knowing the local market inside out. I then take the time to really understand your goals and priorities so that we can achieve those outcomes together.
My clients attest to how my 5 star concierge service takes the hassle out of unexpected hurdles, such as appraisals coming up short. The property market is dynamic and ever-changing, connect with me today to ensure your transaction meets your goals.
Please don’t hesitate to contact me if you have questions on home valuation vs appraisal.
Lorraine Ryall
(602) 571-6799
[email protected]