What should you do when appraisals come in low for first-time home buyers?

I think the important thing to understand is that the appraisal is not done for the sake of the buyer, an appraisal is done for the bank. If you are leveraging your purchase, the bank will have more invested in the deal than the buyer. If the bank (using the appraisal as their guide) does not think that the property value qualifies it for the amount of money that they are going to put at risk, maybe the buyer should listen to the bank. When the markets cool and prices start to turn, appraisers have to be forward looking and see where the trendlines are leading. It usually leads to more conservative appraisals. So, I would tell the first-time buyer to keep saving and wait for the right property at the right price and the right terms.

An appraisal is an unbiased professional assessment of a property's value. As a real estate agent in Southeast Michigan for 20 years, I've seen firsthand how crucial appraisals are. They're conducted by licensed appraisers who evaluate a home's condition, size, location, and compare it with recent sales of similar properties. Appraisals matter because they help determine a property's market value, ensuring buyers don't overpay and sellers receive a fair price. For home buyers, especially in areas like Farmington Hills or Novi, a bank uses this appraisal to ensure they're not lending more than the home's worth. A low appraisal can affect the sale, but with my experience, I guide clients through any challenges that arise.

Begin by asking for a copy of the appraisal and review it with your agent to make sure the proper comparable homes were used in the appraisal. Your agent should be a local expert and know the market well and should have advised you on how high the offer should be, so the gent would know if these comps are good or not. I have encountered appraisers from out of town who are not very familiar with the area and choose comps. If comps are good, ask agent to supply extra comps to the appraiser that may have an impact on the appraisal value. If all else fails and buyer has some extra cash, negotiate with seller to lower the price and add some extra money to your downpayment to overset the appraisal gap.

I generally forward my comps to the appraiser before they visit the property. I keep the appraisal in mind when pulling my initial comps for listing the property at market value. So I send those original comps to the appraiser or I might just forward the appraiser a copy of the originally CMA I put together for the seller.

The property appraisal that you obtain when you seek financing is not necessarily the value of your property. Instead, this report seeks to assure the lender, that by comparing your square footage, lot size, room count, taxes, location and condition of the home that the value of your property is consistent with other similar homes nearby that have sold in the past 6 months. Sometimes the appraised value of your home will be higher or lower than the price. That's could be a function of the comps or the price. The appraiser uses established guidelines to compare properties and ideally, a lender would like to see an appraisal without huge adjustments between the various comparable sales.

Appraisals don't come in low, that assumes the contract price is actually market value. First time home buyers are generally very inexperienced, and often, the agents serving them are also inexperienced and may not yet have a true understanding of value.

When I work with first-time home buyers in Oakland County and Southeast Michigan and we encounter a low appraisal, I always advise the following steps: Stay Calm and Review the Appraisal Consult with Me Consider Negotiating with the Seller Think About Challenging the Appraisal Look into Additional Financing Options Re-Evaluate the Purchase I know a low appraisal can be disheartening, especially for first-time home buyers. But with my experience and dedication, I'm here to ensure you make the best financial decision.

In my opinion, there are a few factors that can cause low appraisals: 1- house is overpriced in comparison to other recently sold homes 2- buyer has inflated the offer to be competitive and have their offer accepted above all others 3- lack of similar homes sold in the neighborhood. Agents may need to supply other comps to appraiser. 4- the appraiser is from out of the area and doesn’t know the market well.

If your appraisal comes in low, you can request a reconsideration of value. In one case, my client reviewed her appraisal and noted that the appraiser had omitted a second parcel of land on her lot. Upon review the value increased. Another time, my client argued the value showing other comparable sales. These sales weren't good comparable matches and the value wasn't increased. Note that you cannot just ask to have another appraisal done. The lender will want to review the report first. In one instance, we made the argument that the appraiser was located well outside the city. We ordered a 2nd report with local expert and the apppraisal came in at value. Discuss this with your loan officer to see about options.

Or bring more cash. It also helps to remember that the appraisal is the value. Realtors need to pay more attention, to Appraisers… in other words, it would help to understand why a bidding war will cause a problem with an appraisal. Because the contract price is not always the value. In order for the buyer to get the house, they may have to come in with more cash. I always like to tell people, if you think your house is worth “x”, try to find at least one other house that is the same square footage or less with that same contract, price or higher. If one cannot be found, chances are that the contract price is too high. At that point, the buyer needs to come in with more cash , or the seller needs to lower their price!

To find a similar home that sold may take a week or so. Your buyer could be out of luck. When presenting the offer I always tell the buyer "Lets write the offer and consider "your highest and best offer."

Appraisal challenges take time and very good comps. Even then, the chance of success is very slim. I usually find that the comps I receive aren't really comparable to the subject property and are too large, have too many bedrooms or baths or are too far away. It's always worth a try, but not easy to succeed.

Ordering a new appraisal is your last option if the prior report was deficient and unable to be corrected. Most of the time you don't have the luxury of time to order a new appraisal with a new lender unless you have "double apped" (filed loan requests with multiple lenders at the same time). The process will be the same as the prior appraisal and there is no guarantee that the value will be higher, lower, or the same. This is also not possible for an FHA loan. The same lender will not order multiple appraisals for the same transaction.

It's never easy to walk away from a deal, especially once you have your time, money and emotions invested in a home. It's important to think about what will happen if the property doesn't appraise. In my experience, Realtors already know if there may be an issue with value and usually want to discuss it with me to ensure that if the appraised value comes in low, the client has the funds to continue with the deal. They share this information with the client, too. This generally happens in a market with low inventory where houses are selling quickly. Think this through before you go to contract.