When Your Home Appraisal Comes in Low – What It Means for Your Redfin Journey

Discovering that your home appraisal came in low can be a surprising moment in the buying or selling process. Simply put, a low appraisal means the value assessed by the appraiser is less than the price you and the other party agreed upon. This can create a significant hurdle in real estate transactions, particularly for those navigating the market with Redfin’s platform and agents.  Whether you are buying your first home in Seattle, Washington, or selling your home in Dallas or Austin, Texas. This guide offers clear, actionable steps and tailored insights for both buyers and sellers facing an appraisal challenge.

To effectively address a low appraisal, it’s crucial to understand why it happened. A low appraisal indicates a discrepancy between the market price you’ve agreed upon and the value an independent appraiser assigns to the property. Mortgage lenders typically base their financing on the appraised value or the purchase price, whichever is lower, directly impacting the loan amount.

Several factors can lead to an appraisal coming in low:

• Shifting market dynamics: Rapid changes in local market conditions, such as a sudden cooling period, can affect property values.
• Limited comparable sales (comps): Appraisers rely on recent sales of similar homes in the area. If there aren’t enough relevant or recent comps, the appraisal might be conservative.
• Unique property features: Homes with highly customized or unusual features might not be valued as highly by appraisers if those features don’t align with broader market preferences.
• Appraiser considerations: Sometimes, an appraiser’s methodology, their specific interpretation of the market, or even limited access to certain property information can influence the outcome.
• Overly ambitious pricing: If the initial asking price was set too high relative to the true market value, the appraisal will often reflect that overestimation.

The appraisal process itself involves a third-party appraiser, typically ordered by the lender and paid for by the buyer. Their work includes a thorough examination of the property, detailed analysis of comparable sales, and consideration of property condition and features.

Strategies for sellers when the appraisal comes in low

If you’re a seller and your home appraisal came in low, don’t despair. There are several strategic avenues to explore, often with the expert assistance of your Redfin agent.

• Request a reconsideration of value (challenge the appraisal): Your first step should be to meticulously review the appraisal report for any factual inaccuracies or overlooked details. Then, you and your agent gather additional, stronger comparable sales that the appraiser might have missed or undervalued. This information can form the basis of a formal rebuttal submitted to the lender and appraiser, potentially leading to an upward adjustment.
• Negotiate the purchase price: This is often the most common resolution. Your agent can skillfully navigate conversations with the buyer to propose a price reduction. Leveraging your agent’s negotiation skills and access to robust market data is crucial here. Swift and decisive action is important to maintain momentum and keep the deal on track.
• Offer seller concessions or financing: Instead of reducing the core price, you might offer seller credits toward the buyer’s closing costs. While less common, seller financing, where you act as the lender for a portion of the loan, could also be an option to bridge the gap.
• Consider canceling and relisting: If other solutions prove unworkable, canceling the current contract and relisting your home might be a viable last resort. If you choose this path, consult with your Redfin agent to adjust your pricing strategy and marketing approach for a more successful re-listing.

Pro insight from Redfin principal agent Rachael Wang:

“When the appraisal for a home comes in low, setting the right expectation is crucial for sellers. If an offer is exceptionally high, we’d explore whether the buyer can include an appraisal waiver, meaning they’d cover any gap if the appraisal falls short. In today’s market, buyers are less likely to agree to this, so sellers should be prepared to renegotiate the price if the appraisal comes in low.” – Rachael Wang

Proactive steps for sellers before the appraisal:

To potentially avoid a low appraisal, sellers can take preventive measures. This includes comprehensive home preparation, ensuring repairs are done, effective staging, and maximized curb appeal. 

Crucially, provide a detailed list of all upgrades and improvements to the appraiser during their visit. Finally, work closely with your agent on strategic pricing based on a thorough comparative market analysis to align your asking price with realistic market value.

Strategies for buyers when the home appraisal comes in low

As a buyer, a low appraisal can feel like a setback, but you also have clear options.

• Request a price reduction: Your first approach can be to ask the seller to lower the purchase price to match the appraised value. Your Redfin agent plays a vital role in formulating a compelling case and facilitating this negotiation with the seller.
• Cover the difference in cash: If you have available funds, you might choose to pay the difference between the appraised value and the purchase price out of pocket. Understanding the full financial implications and feasibility of this option, in consultation with your lender, is key.
• Utilize the appraisal contingency: Most purchase agreements include an appraisal contingency, a clause that protects you as the buyer. This allows you to back out of the deal and typically recover your earnest money if the appraisal comes in low and an agreement cannot be reached.
• Decide to walk away: If none of the above options are suitable or achievable, walking away from the deal might be the best course of action. This decision should be made carefully, weighing all financial and personal factors.

The indispensable role of your Redfin real estate agent

Whether you are buying or selling, your agent is an invaluable partner in navigating the complexities of a low appraisal.

• Expert guidance: Your agent provides expert guidance in interpreting the appraisal report, helping you understand its implications.
• Negotiation acumen: Their experience in handling sensitive conversations and complex negotiations is critical in bridging the gap between buyer and seller expectations.
• Market insights: Redfin agents leverage the platform’s extensive data and their local market knowledge to provide robust comparable sales analyses and support your position.
• Communication hub: They serve as the central point of contact, efficiently liaising with lenders, appraisers, and the other party’s agent to keep the process moving forward.

Frequently asked questions: About low appraisals

1. “How long does an appraisal take?” Typically, an appraisal can take anywhere from a few days to a couple of weeks after it’s ordered, depending on the appraiser’s schedule and property complexity.
2. “Who pays for the appraisal?” The buyer usually pays for the appraisal as part of their closing costs. However, in some cases, the seller may agree to cover the appraisal cost as part of the negotiation.
3. “Can an appraisal be higher than the offer price?” Yes, an appraisal can definitely come in higher than the agreed-upon offer price. This is beneficial for the buyer as it provides immediate equity.
4. “What is an appraisal contingency?” An appraisal contingency is a clause in a purchase agreement that allows the buyer to terminate the contract if the home doesn’t appraise for at least the purchase price.
5. “Does Redfin help with low appraisals?” Absolutely. Redfin agents are experienced in handling low appraisals and will work closely with you through every step, providing data, negotiation support, and strategic advice.

Moving forward: When your appraisal came in low

A low appraisal can be a challenging moment, but it’s important to remember that it’s a common hurdle in real estate, not necessarily a deal-breaker. Proactive planning, clear communication, and informed decision-making are key to successfully navigating this situation. When your home appraisal comes in low, connecting with a Redfin agent for their personalized support and expert guidance can make all the difference in achieving your home-buying or selling goals.

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