What Happens When an Appraisal Is Less Than the Price?

Nobody wants to pay more for a home than the worth, which is why lenders hire appraisers. In a perfect world, the professional appraiser arrives at the same price as the amount you want to pay. When the appraiser determines your dream house isn't worth the money, you must work through your real estate agent to explore possible solutions.

The Appraisal

An independent appraiser, free from ties to the lender or either buyer or seller, examines the sale property to establish a price. Savvy sellers get this done before placing the home on the market to help set a price. This helps avoid a surprise and possibly unpleasant appraisal.

Professional real estate agents, or designated assistants, meet the appraiser at the sale property and answer any questions the appraiser asks. The agent typically brings a preliminary title report with a property map in case there are questions about its physical boundaries.

Comparable Sales

Appraisers must make comparisons based on recently sold "like" properties, and that's not possible in all situations. For example, residential neighborhoods with a variety of architectural styles can be a problem for appraisers since its homes don't conform with one another. When the first appraisal price comes in lower than the sales price, and the home is considered a non-conforming property, you may need a second estimate. The lender can let the appraiser do a simple recalculation using the sales figures of older but comparable homes.

Physical Properties

Plumbing and electrical systems, building materials, and construction quality are all on a home appraiser's must-check list. Some also base prices on information from the county assessor. The appraiser should note if the home has changes, such as a new roof or upgraded plumbing, that are not listed on the county records. If she doesn't, you could ask for a price reassessment. Collect proof of the improvements and submit them to the lender. It could be enough cause to waive the small difference between the sales and appraisal prices.

Alternative Assessments

An appraisal listing an amount well under the sales price raises questions for the lender. It could be due to an unqualified appraiser who is not familiar with the geographic region or the residential area. When this happens, the seller can hire another appraiser but she must match the new person's credentials with the appraising project. The buyer can agree to pay all or part of the new appraisal, but the seller must order the new evaluation.

Cutting Costs

When the appraisal and any new evaluations confirm similar sales prices, sellers can reduce the property price to match the appraisal figures. Buyers can also add more funds to escrow to pay for the difference between the two prices. Real estate agents and brokers occasionally reduce commissions to make up the price difference.

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