Posted on: 18 April 2017
Banks want to minimize their risks and will typically only loan buyers mortgages equal to the home's market value. This is why it can be distressing when a home appraises for lower than the asking price. Here are a couple of reasons why this can happen and what, if anything, you can do about it.
The Appraiser Uses Outdated, Non-Local, or Just Bad Information
In addition to inspecting the homes, appraisers use what are known as comps to assist them with determining how much a home is worth. Essentially, comps (comparables) are the prices homes similar to the one you're purchasing sold for in the local area. While they can be helpful in setting the home's market price, the appraiser's numbers are only as good as the information he or she receives. If the person uses bad comps or doesn't conduct thorough research, he or she may produce a low appraisal.
For example, a few homes in the neighborhood may sell for an abnormally low price. However, this was because those homes had serious problems, such as mold or structural issues. If the appraiser doesn't investigate why these homes sold for below-market prices, the person may think that's normal and set the value of your home accordingly.
Other comp problems that can produce a low appraisal include using numbers from nearby neighborhoods because there aren't enough sold homes in your neighborhood to do a proper appraisal and using outdated comps where home prices were lower than they currently are.
You or your real estate agent can discuss these issues with the appraiser and ask him or her to redo the appraisal using better information. Be aware, though, the person may not be obligated to do what you're asking and/or may charge for the additional effort, so be prepared for either outcome.
The Home's Amenities Aren't as Valuable as You Thought
Another reason the home may be appraised for lower than you expected is because its amenities aren't as valuable as you thought they were. For example, you may think a finished basement should be valued as the rest of square footage in the home. However, appraisers are required to price basement space at a lower value because it sits below the ground. Other amenities, while expensive, may not differ in quality than their cheaper counterparts, which can cause the appraiser to value them less.
One way to deal with this issue is to point to other amenities the appraiser may have overlooked. For example, if your home has an exceptional view that's not available at other homes in the neighborhood, that may result in the appraiser increasing the home's value because of that unique feature.
For more information about this issues or other suggestions on overcoming the problem, talk to a local real estate agent.Share