What to Do If Your Appraisal Comes In Low

Few moments in a real estate transaction cause more stress than a low appraisal. You have an accepted offer or a planned refinance, and the appraised value comes back below the purchase price or below what you need. It can feel like the deal is in jeopardy. In many cases there are workable options. This article explains why low appraisals happen, what buyers, sellers and homeowners can do, and how to request a review in a way that is actually useful.

What "low" actually means

An appraisal is called low when it comes in below a number someone was hoping for: usually the purchase price, or the value needed to support a refinance. But the appraiser's job is not to match that number. It is to estimate market value from the evidence. A value below the contract price may simply mean the price agreed between one buyer and one seller was higher than the broader market supports.

Why appraisals come in below the price

Competitive bidding

When several buyers compete for one home, the winning offer can exceed recent comparable sales. The buyer may be happy to pay that premium, but the appraiser has to rely on what the market has actually paid for similar homes. Until other sales confirm higher prices, the appraisal may lag.

Features the market does not fully value

Expensive renovations, luxury finishes or unusual features can push a price up without being matched by comparable sales. The buyer may love them, but the market evidence may not show buyers in general paying that much more.

Limited comparables

In small towns, rural areas or unusual properties, there may be few recent sales. The appraiser has to work with older or less similar sales, and the result can be more conservative.

Condition issues

The inspection may reveal issues such as foundation movement, water in the basement, an aging roof or an outdated electrical system that affect value.

Errors

Occasionally a report contains a factual error: wrong square footage, a missed bathroom, an incorrect garage size or a comparable sale with the wrong details. These are the situations where a review can make a difference.

Options for buyers

• Renegotiate the price. A low appraisal is a reasonable basis for asking the seller to reduce the price, particularly if your offer was conditional on financing.
• Increase your down payment. If you still want the home at the agreed price, you may be able to cover the gap with additional funds, so the loan amount is supported by the appraised value.
• Split the difference. Buyers and sellers sometimes meet in the middle.
• Use your conditions. If your offer has a financing condition and you cannot close, talk to your realtor and lawyer about your rights under the contract.
• Request a review. If you believe there is a factual error or an overlooked sale, see below.

Options for sellers

If a buyer's appraisal comes in low, you can hold to the price and hope the buyer covers the gap, negotiate, or relist. It is worth considering what the appraisal says about the market. If the property is likely to appraise similarly for the next buyer, holding firm may only delay the same conversation.

Options for refinancing

If you are refinancing and the appraisal is lower than expected, you may be able to borrow less, consolidate a smaller amount, or wait for the market to move. Your lender or broker can explain alternatives. See our article on refinancing appraisals for more.

How to request a review

A review request, sometimes called a reconsideration of value, is most effective when it is factual and specific. The appraiser will consider new information, but not simple disagreement with the result.

Helpful requests include:

• Factual corrections. The report shows two bathrooms but the home has three. The garage is listed as single but it is double.
• Overlooked comparable sales. Recent, similar sales that were not considered, with the address, date, price and key details.
• Documented updates. Work that was not apparent during the inspection, supported by receipts or permits.

Less helpful requests include sending listings (which show asking prices, not sale prices), comparing to homes in different neighbourhoods, or arguing that the price must be right because the buyer agreed to it.

For lender appraisals, the request normally goes through the lender rather than directly to the appraiser. For private appraisals, you can contact the appraiser directly.

What the appraiser will do

The appraiser reviews the new information and decides whether it changes the analysis. If a factual error is confirmed, the report is corrected. If an additional comparable sale is relevant, it is considered. Sometimes the value changes; sometimes it does not. Either way, a good appraiser explains the reasoning.

Preventing surprises

• Look at recent sold prices, not just listings, before making an offer.
• Be cautious about bidding far above recent sales without extra funds available.
• Give the appraiser a list of updates and documents at the inspection.
• Consider a pre-listing appraisal if you are selling an unusual property.

Talk to us

If you have questions about an appraisal we prepared, contact us. If you need an independent appraisal anywhere in Winnipeg or Southern Manitoba, order online.

Frequently asked questions

This article is general information, not legal, tax or financial advice. Speak with a qualified professional about your situation.