What to Do When Your Home Appraisal Comes In Low
Receiving a low appraisal can feel like a gut punch, especially when you're in the middle of buying or selling a home. A low valuation can cause a lender to reduce the loan amount they're willing to offer, potentially derailing a carefully negotiated deal. But before you panic, it's important to understand that a low appraisal is not necessarily the final word. Knowing how to challenge or appeal a low appraisal can make the difference between a deal that falls through and one that closes successfully.
In this guide, we'll walk you through every step of the process, from reviewing the appraisal report for errors to requesting a formal reconsideration of value. Whether you're a buyer, a seller, or somewhere in between, these strategies can help you push back on a valuation that doesn't seem to reflect the true market value of the property.
Why Low Appraisals Happen
Before you challenge an appraisal, it helps to understand why low appraisals occur in the first place. Appraisers are human, and they work with the information available to them at the time of the inspection. A few common reasons a home might receive a lower-than-expected valuation include:
- The appraiser used outdated or incorrect comparable sales (often called "comps") that don't accurately reflect current market conditions.
- The appraiser was unfamiliar with the local neighborhood or micro-market, leading to an inaccurate comparison with homes in different areas.
- The appraiser missed improvements, upgrades, or features of the home that would add value, such as a recently renovated kitchen, a finished basement, or new HVAC systems.
- There were factual errors in the report, such as incorrect square footage, the wrong number of bedrooms or bathrooms, or an inaccurate lot size.
- Rapidly rising home prices created a lag where recent sales don't yet fully capture current demand in the market.
Understanding the root cause of a low appraisal will help you build a stronger case when you formally challenge it.
Step 1: Review the Appraisal Report Carefully
The first step in challenging a low appraisal is to request and thoroughly review the full appraisal report. As a buyer, your lender is required to provide you with a copy of the report, typically at least three business days before closing. As a seller, you can ask the buyer to share it with you.
As you read through the report, look for the following red flags:
- Factual errors such as incorrect square footage, an inaccurate bedroom or bathroom count, or the wrong year of construction.
- Comparable sales that are geographically too far away from the subject property or that sold many months ago in a fast-moving market.
- Missing upgrades or significant improvements that were not noted or credited in the valuation.
- Comparable homes that are not truly comparable in terms of size, condition, location, or features.
Document every discrepancy you find. Even a single factual error can be a legitimate basis for requesting a revised appraisal.
Step 2: Gather Supporting Evidence
Once you've identified potential issues, it's time to compile evidence that supports a higher valuation. The goal is to give the appraiser or lender concrete data that justifies reconsidering the original estimate. Your supporting evidence might include:
- Recent comparable sales that closed after the appraisal's effective date and reflect stronger market conditions.
- Documentation of upgrades or improvements, including contractor invoices, permits, and before-and-after photos.
- Information about neighborhood amenities, school ratings, planned developments, or other local factors that positively affect home values.
- A comparative market analysis (CMA) prepared by a licensed real estate agent who is active in the local market.
The more specific and well-documented your evidence is, the more persuasive your challenge will be. Vague objections rarely succeed; detailed data with clear explanations is far more likely to prompt a reconsideration.
Step 3: Submit a Formal Reconsideration of Value (ROV)
A Reconsideration of Value, or ROV, is the formal process by which you request that an appraiser or lender review and potentially revise the original appraisal. Here's how to go about it:
- Contact your lender and inform them that you wish to dispute the appraisal. The lender acts as the intermediary between you and the appraiser, since regulations prohibit direct contact with the appraiser in many circumstances.
- Submit your ROV request in writing, including all of the supporting evidence you've gathered — comparable sales, upgrade documentation, factual corrections, and any other relevant data.
- Be professional and factual in your request. Avoid emotional language and focus solely on the data. An appraiser is much more likely to take your challenge seriously if it's presented as an objective analysis rather than an emotional reaction.
- Ask the lender to confirm the timeline for receiving a response, as this can vary depending on the lender and the appraiser's workload.
Keep in mind that an ROV does not guarantee a change in value. The appraiser may review your evidence and still maintain the original valuation. However, if the evidence is compelling and the errors are clear, many appraisers will adjust the report.
Step 4: Request a Second Appraisal
If your ROV is unsuccessful, you may have the option to request a second appraisal. This typically involves additional costs, and policies vary by lender. Some lenders will order a second appraisal on their own if they believe the first was flawed. In other cases, you may need to negotiate with the lender directly.
In a situation where two appraisals produce different values, the lender typically uses the lower of the two figures. However, in some cases, a second appraisal can result in a higher valuation that the lender is willing to accept, particularly if the first appraisal contained clear and demonstrable errors.
Step 5: Explore Your Other Options
If the appraisal challenge process doesn't produce the result you need, you still have a few other paths forward:
- Renegotiate the purchase price. Buyers and sellers can negotiate a lower sale price that aligns with the appraised value, allowing the transaction to proceed without requiring a larger down payment from the buyer.
- Pay the difference in cash. If the buyer has access to additional funds, they may choose to cover the gap between the appraised value and the agreed-upon purchase price out of pocket.
- Walk away. Depending on the terms of the purchase agreement and any appraisal contingency clauses, the buyer may be able to back out of the deal without losing their earnest money deposit.
Final Thoughts on Challenging a Low Appraisal
A low appraisal doesn't have to mean the end of your home sale or purchase. By carefully reviewing the appraisal report, gathering solid supporting evidence, and submitting a well-documented Reconsideration of Value, you give yourself a real opportunity to correct errors and potentially secure a revised valuation. The process requires patience, attention to detail, and a willingness to advocate for yourself, but for buyers and sellers with a strong case, it is absolutely worth pursuing. Work closely with your real estate agent and lender throughout this process — their experience and local market knowledge can be invaluable assets as you navigate the appraisal challenge and keep your deal on track.