Low home valuations don't happen often. According to Fannie Mae, valuations are low less than 8 percent of the time, and many of these low valuations are renegotiated upwards after an appeal, Graham says. How often a home's valuation is low generally depends on neighborhood and market conditions. While low ratings may be rare, they do occur.
It's best to be prepared for the possibility of this situation happening so you don't get caught off guard. Whether you're selling or buying, be prepared. Review these home valuation tips to learn what to do to keep the process going and prevent the transaction from failing. In a buyer's market, where inventory is high, a low valuation means that the seller will have to lower the price if he wants to sell his house quickly.
This is because home appraisals are largely based on sales of comparable homes that closed before the home was purchased. However, other reasons may include an inexperienced appraiser, inaccurate compensation, or an inexhaustive evaluation of the property. Only buyers with a contingent valuation in their offer can terminate the contract when a home has a low valuation. If the purchase agreement contains an appraisal contingency, the buyer is protected in the event of a low valuation.
Your real estate agent can help you avoid valuation problems by having compensations ready to show to the appraiser who prepares your appraisal report. Under federal regulations, the appraiser must be impartial and have no direct or indirect interest in the transaction. There are many steps to getting a home loan, and a home appraisal is one of the most important components of the process. Appraisals can be especially stressful when you consider how they may affect your mortgage and if the sale is complete or fails.
Knowing your options and working with a good lender and a good agent can be the key to overcoming a low appraised value. The report asks the appraiser to describe the interior and exterior of the property and neighborhood. In short, a low valuation causes costly delays and homes that remain on the market for extended periods of time. As a buyer, you have the advantage that a low valuation can serve as a bargaining tool to convince the seller to lower the price.
Without an appraisal, buyers and sellers would not have an impartial assessment of the value of their home and neither party would know what price to negotiate. An appraisal may also be low if an appraiser omits information about major home improvements or cannot find suitable comparable products in the area. Appraisals can help buyers avoid overpaying for homes, but the seller may consider a low appraisal to be inaccurate and reluctant to lower the price.