5 Steps to take when the appraisal comes in low

Confused about what to do when your appraisal comes in low?

steps-to-take-with-a-low-appraisalIf you’ve ever been in a situation where your appraisal comes in low and you didn’t know what to do hang around because this post is for you. You are not powerless in this situation but you do have to follow a certain protocol.

Today we’re going to discuss the 5 steps you can take when your appraisal comes in low. While this is no guarantee that the value will be changed it will give you some actionable steps you can take to make your case.

1Review the Appraisal- The first step you should take when your appraisal comes in low is to review the report for factual errors. There are some common errors to look for in the appraisal report that can affect the appraiser’s final opinion of value.

Appraisers are only human so it is possible for us to make mistakes. If there is a factual error you can request that the appraiser take a look at it and make the correction.

There are some who may blame the appraiser for doing a bad job or being incompetent and want to report the appraiser to their state board but I would ask that you reconsider this.

It may just just be a matter of a simple error that the appraiser can change and this might change their final opinion of value.

2Review the comps used- Were their sales in your neighborhood that you thought should have been in the report but were not? If so then you can provide this information to the appraiser for their review by submitting a reconsideration of value.

You’ll want to keep in mind that the appraiser will have to review the sales and determine if the sales meet the definition of being a comparable. My motto is that “comps are always sales, but sales are not always comps”.

Appraisers have to follow appraisal guidelines as well as underwriter guidelines to determine what sales can be used as comps but it doesn’t hurt to provide them for review.

It goes without saying that this type of information is best provided upfront before the appraisal is completed. Providing it after the appraiser has turned in the assignment may take more time because it has to be done through the lender as a reconsideration of value.

3Was a full appraisal done?- I mention this because some lenders have used drive-by appraisals in the past. A drive-by appraisal typically does not provide as accurate an appraisal as a full interior inspection does.

When an appraiser is able to physically measure and view the interior he gets more accurate information and can personally see the quality and condition of the home. This first hand knowledge of the home can help them in comp selection as well as reconciling their final opinion of value.

I have had situations where lenders have obtained a second full inspection appraisal from me after their first drive-by appraisal by another appraiser did not provide a reliable estimate of value.

4Request another appraiser- I am not always in favor of this option being used whenever an appraisal comes in lower than expected because the appraiser could be spot on with their value. The only time I would recommend getting a second appraiser is when the first appraiser was found to not be geographically competent to perform appraisals in the area the property is located in.

With the creation and widespread use of AMCs (appraisal management companies) the use of out of area appraisers has been on the rise. Many AMC’s will only use fee as their selection criteria for choosing an appraiser and when this is done they may get an appraiser who will go anywhere for work, whether they know the area or not.

If this happens, and the appraiser is not familiar with the local market, then I would recommend getting a second appraisal from an appraiser who is familiar with the market and geographically competent to do work in that area.

5Renegotiate the contract- This is one option that I think most people don’t consider, however it is the most logical. If an accurate appraisal by a competent appraiser was done on a property and it comes in lower than the contract then it would not be wise to pay more for something than what it is worth.

Submitting a counter offer based on the appraisal just makes more sense. A bank will not loan more money to buy a house than what it is worth. If you by chance were able to get the money and pay the higher price for the home what might happen if something came up and you had to resell it shortly after buying it? You might run into the situation where you could not recoup your money because it was overpriced. If you go into the situation knowing this then you’ll be all the better for it.


Can you think of any other action owners should take if their appraisal comes in low? If so then leave your thoughts below and we’ll keep the conversation going. As always, thanks for reading.

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  1. Mark Ziegler says

    In terms of geographic competency, I don’t need to know if the neighbor’s dog crapped in your yard last night to produce a quality report. I’ve had AMC’s not place the order when my office wasn’t within 30 miles of the subject. I’ve encountered a number of these issues through the years mostly because of my office distance, none rising to the level of a formal complaint and all dropped (to include court appearances) when they were fully informed of my competency. While I cover a rather large territory, I would never suggest an appraiser conduct work in a market (or even specific property type) they aren’t truly competent in.

    On the ROV’s, in 30+ years I’ve never had anyone provide and additional “truly” comparable sale. Likely a matter of access to good (or at least most) available data. That said, these can come back to bite you in unknown ways. It’s possible to anticipate this in a sale where you’ve reviewed the contract, but not so much in a refinance, which my associate encountered a few years back.

    The borrower filed a ROV with the assistance of the L.O. The AMC reviewed it, deemed it to be without merit and never informed my associate this ever existed. Not long thereafter a formal complaint was filed with the state. While it was obvious some coaching was going on (L.O. again) the complaint basically whined about the value, displayed unsupported GLA (assessor not ANSI), wondered why the 35% of unfinished GLA wasn’t valued the same as the finished areas and provided no additional sales (much less comparable and displaying similar physical and functional obsolescence).

    Within the first 10 days a response was required and they requested additional questions be answered within 30 days. This action sat with the state for almost 2 more years before any further action was taken. At that point there were additional questions related USPAP and some adjustments, but it was more of a proctology exam than a quest to answer anything relative to the complaint. I suggested my associate get called before the board and expose this charade, she abhors confrontation. In the end, they eventually sent a formal letter effectively stating “O.K., you didn’t do anything wrong, but don’t do it again”.

    Got to love being a living, breathing E&O Policy!

  2. JHall - Colorado says

    O.k., but I don’t know about this geographically competent argument as a stand alone consideration. I’m super experienced with mountain, but live far away in the easy suburbs these days. I’m geographically competent wherever I go, as long as I take the time to research the market properly. More important qualifiers for the geo cmptncy argument are to verify if the real estate professional has direct subscription access to the local MLS system, or if their using shared data. Also even more important is to know how much the appraiser was paid vs how much the borrower was billed for appraisal services. Oftentimes the middlemen will assign everything to a small group of lowest priced appraisers in the interest of raking larger unearned fees rather than assigning to local appraisers whom may charge more. The problem of geographical competency is not always rooted in distance but more commonly rooted in the clients distribution process and if they use an appraisal management company whom may benefit by cutting those corners. Let’s call that problem for what it is. I almost never get ROV’s because I post the market data I researched along with detailed description of how data was filtered down to get there within the report itself. Seeing is believing. There is actually a 6th thing a borrower can do which is more important than all other 5 points; Come with more cash to cover any possible spread differences and borrow less. For every dollar borrowed it amortizes to a cash equivalent debt over term. Even with super low rates that multiplier could reach 2x right now. So it’s always good form to borrow less and pay more up front since that saves substantial cash equivalency over term. My buddy is wanting to buy but is a touch short on prequalification. I told him it’s better to liquidate everything and come with a larger down, borrow less, and that will ultimately put him in a stronger financial position in the future where he can repurchase those unnecessary luxury items like the boat and trailer, skidoos and all of that. Want to know the ‘secret of the Joneses’ next door, with all their posh goods? They probably paid 50% down, ran a 15 instead of a 30, flipped a smaller home with equity to get there, etc, and subsequently have a lot more available cash than the other residents whom ran on credit alone in the risky 98% LTV approaches. If the buyer problem is lending based the smart solution will always be to borrow less. Thanks Tom. Jeremy.

    • Jhall, you make very good points. I never judge geographic competence on distance along because I realize that you may know an area but not live in it. I agree about having access to data sources. Too many appraisers will do work in an area without having reliable data sources like local MLS and sales databases. They will use inaccurate county information without verifying its accuracy. The whole AMC model allowed a lot of this to happen because the AMC’s main criteria is fee, so lower tier appraisers who are fighting over work will take all they can get, even if it is not local. But the thing about it is that the lower the fee the lower the margin. This means you have to do them as quickly as possible, which can decrease accuracy. Your advice about bringing more money to the table is spot on but most people buy the mortgage payment first with little concern about anything else, and then the appraiser is the bad guy when they don’t appraise the home for an inflated price, which was arrived at by factoring in seller paid concessions. Thanks for your well thought out response, I appreciate it.

  3. Walt Lambert says

    Hey Tom,
    Thanks for a fair assessment and logical, common sense approach to an ongoing “problem” in the field of valuation. Yes, we are human and under the strain of meeting what sometimes seems like an impossible deadline will transpose a number or drop a line. Hopefully we’re professional enough to say “Yes, I did make a mistake there.” Of course, common sense can be allusive to the other point of view when the seller is convinced his home is “Architectural Digest” material even though it leans to the left 5 degrees and hasn’t had an update since 1967. You have to love this profession and the great people we meet. Great article.

    • Thanks Walt. You make a good point about the pride of owners for their homes. 🙂 I’m sure I am the same with mine but we need to know when this type of thinking can get in the way of us selling our home. The market doesn’t have as much emotional investment in our house so we really have to price it competitively with other homes to make it attractive to potential buyers. Thanks for sharing your thoughts.

  4. Thank you for the article Tom. I like to point out, when talking about this subject to users of appraisals, that a low appraisal does not mean that there is a problem with the appraisal. Also, if this appraisal is for a purchase, the appraiser has likely reviewed the contract of sale and knows that the appraisal is coming in lower than the contract prices. The appraiser has likely thought long and hard before issuing that opinion. If you want to dispute the appraisal, be sure to talk to the lender or the AMC and ask for the process. Usually it involves filling out a form and providing additional data or pointing out any errors that there might be in the appraisal.

    • I agree Gary. I find the most of the time the appraisal is lower than the contract the agent really did not do a thorough market analysis or the buyer had a preconceived idea of what they wanted to get out of their home. Whenever the agent does a good CMA the list price and contract price if more lined up with the market. Agents that don’t feel comfortable doing this can always obtain a pre-listing appraisal.

  5. These days it seems we think an appraisal below the contract is the end of the world, but it is often something that can lead to further negotiation. Obviously if the value was too low, that’s unfortunate and can cost the buyer money out of pocket. Though if value really should be lower, it can lead to a lower purchase price (which is certainly better for the buyer). Thanks for shedding some light on this issue.

    • Thanks Ryan. I agree, a low contract is not the end of the world. This should be used by the buyers agent as a key point in renegotiating the contract.

    • JHall - Colorado says

      Disagree with that concept. The more out of pocket the borrower comes with the better. The smartest consumers borrow the least. It is not the responsibility of the appraiser or the lender to put consumers into new deals. The buyer must be his own well informed advocate. If the realty agents were doing their job correctly the buyers would theoretically never ended up in this scenario in the first place.

      • Some agents take listings and price them by listening to the seller, which is not right. The agent is being paid a high fee for their expertise and they should let the seller know when their expectations are too high. I teach agents how to price homes with the appraiser and comps in mind so that there is less likelihood of a deal falling through.


  1. […] that was not included in the report than may support a higher value. You can find out the 5 steps you can take when your appraisal comes in low in a previous […]

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