According to Fannie Mae, valuations are low less than 8 percent of the time, and many of these low valuations are renegotiated higher after an appeal, Graham says. How often a home appraisal is low usually depends on neighborhood and market conditions. If an appraisal is lower than the purchase price when buying a property, it can be bad news for both the buyer and the seller. When an appraisal is low, the buyer's mortgage lender will lend no more than the appraised value.
Part of this is because this is a situation where a buyer could have an underwater mortgage. There is no universal evaluation schedule. However, valuations in rural areas may take longer because certain rural areas may face a shortage of appraisers. It may take months to get an appraiser to evaluate a property.
For the sale to take place, the buyer will need to negotiate with the seller to accept less for the home or make up the difference, which is also known as the “appraisal gap.” Whether you're selling or buying, you need to learn how the outcome of the home appraisal affects the sale. But these are large, costly renovations that, while helping to increase the value of your home, must be completed before you list your home, long before an appraisal takes place. If you're a buyer, owner, or seller, you'll want to understand how the appraisal process works and how an appraiser determines the value of a home. When the appraised value is below the contract price, it limits the amount the lender will finance because it bases the loan on the appraisal.
In a refinance transaction, an appraisal assures the lender that you are not giving the borrower more money than the home is worth. While appraisals help buyers avoid overpaying for homes, a seller may think that a low appraisal is inaccurate and reluctant to lower the price. If the appraiser expects a percentage of the home's value to be paid, it may be a sign of an unethical practice, which should be avoided. A low appraisal can affect not only the sale of your current home, but also the purchase of your new home.
You and your real estate agent need to be able to find similar homes that weren't considered in your appraisal before that date. As you can imagine, the seller's best bet is to try to price the home for a value that matches the sale price. The contingency clause in your purchase agreement means you can get away from a low home appraisal without losing money. Unfortunately, if your surrounding area has experienced recent distressed sales, that can lower the appraised value of your home.
Let's look at a quick example of how the LTV works when the appraisal hits just the target with the home price. The appraiser will first do a bit of homework, researching public records regarding the sales prices of similar homes in the neighborhood that have been recently sold.