How to avoid a low home valuation

Home appraisals are done by a professional appraiser to give an estimate of the market value of a home or property. Usually, they are done at the request of a lender who is reviewing your application for a new or refinanced mortgage.

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How to avoid a bad review

In some cases, home appraisals can be low because values ​​have fallen in the neighborhood, home improvements need to be made, or the buyer has simply bid too much. A lower home valuation can derail a potential sale when a lender won’t agree to provide the full amount of financing the buyer needs to close the deal.

Why home assessments are important

Ratings are important for mortgage lenders because they make sure the institution doesn’t approve a loan to a borrower for more money than the property’s value, says Al Graham, regional manager for Georgia, Alabama and Florida at Silverton Mortgage. Appraisal also protects the buyer from overpaying for a property.

Real estate appraisals are also important because lenders can use them to help borrowers determine how much they can realistically spend on a house or know the current value of the properties they want to buy, says Rose Sklar of the Sklar team at Coldwell Banker. Realty in Weston. , Florida.

Homeowners also ask for appraisals when refinancing their mortgage or obtaining a home equity loan or home equity line of credit.

“Typically the loan-to-value ratio is determined by the lesser of the appraised value or purchase price for a purchase transaction,” says Matt Hackett, COO of Equity Now, a New York-based direct mortgage lender. York. “For refinancing, the loan / value ratio is determined by the appraised value. This ratio is very important both from the point of view of qualification and pricing.

Why Avoiding a Low Home Appraisal is Important

A low home valuation could delay the sale of your home, which can be problematic if you’ve started the process of buying another home. If you’ve planned for immediate changes, like a move for a job or a divorce, a low appraisal can make it harder to sell your home for the price you were hoping to get.

A low valuation can also mean that the house could be on the market for a longer period of time. Buyers are sometimes put off by homes that have been on the market for several months, perceiving that there are issues with the home or the asking price. Currently, however, the housing market is particularly competitive, so it may be of less concern to most sellers than it was before the pandemic.

What are the causes of low ratings

There are many factors that can go into a low assessment. Taking the time to fix leaky faucets or larger issues like an old fence can increase the value of the home. Here’s how you can tackle some of the more common problems:

The appearance of a house matters

A dirty or ugly home will usually negatively affect your rating, Graham says.

How to avoid: Before listing your property, consider having it professionally cleaned inside and out and showcasing it not only for potential buyers but also for appraisers, he says. Do not forget about areas such as the attic, basement and garage, especially if they are not in use. Clean and mow the yard, touch up the paint and put away your tchotchkes.

Changing market conditions

Appraisers use comparable homes known as “comps” in the general field to help determine the value of a property. Because market conditions change so quickly, a “mockup” older than a month may no longer be relevant in today’s market, Graham explains.

How to avoid: Do your research on how quickly or slowly house values ​​change in the area. There may be times when sales slow down, such as at the end of summer or winter, when fewer people are looking to buy a home.

Lack of recent “comps”

A lack of recent sales of comparable properties in the area could significantly affect appraised value, Graham says.

You could live in an area where homes are rarely sold or in a new part of town that is still under development. If you live in a fairly new building and few condos have been sold to a second owner, this could also affect your valuation.

Often there aren’t enough deals in the area to choose from, Sklar says.

“Banks usually only go back three months,” she says. “When home sales slow down, good builds age very quickly, often leaving no comparable choice and resulting in low appraised value.”

How to avoid: Check the number of home sales in your area and what time of year most of them occur. If you can wait, try to sell your home during these times of the year.

Disconnect between appraiser and buyer

A home may be worth $ 5,000 more because it’s in the buyer’s preferred school district or on the same street as a parent, but the appraiser ignores sentimental value, Graham says.

How to avoid: This might be more difficult to avoid as it is often of a personal nature.

Unrealistic expectations

Evaluators look at comparable sales in the neighborhood and generally “the sales in increments with a lower sale, a higher sale and a very similar sale and come up with a number they deem appropriate,” Hackett explains.

The reasons for low ratings are usually more due to an unrealistic idea of ​​value than something cosmetic, ”he says. “Appraisers are human and they will generally respond more favorably to a well-maintained home.

How to avoid: Look at the prices of homes sold over the past month that are of similar size and age to determine a range for your appraisal before it is made.

How often are house ratings low?

Low house appraisals don’t happen often. Fannie Mae says valuations are low less than 8 percent of the time and many of those low valuations are renegotiated up after a call, Graham says.

How often a home appraisal is low depends on the neighborhood and market conditions. The majority of reviews tend to arrive at the right value, Sklar says.

“Those that are weak in today’s market are often the result of other properties or units that have not been improved, resulting in weak comparables which in turn are used by the appraiser,” says -it. “Always check your assessment and make sure that comparable uses are fair and equitable.

Steps you take to avoid a low rating

Sklar recommends that the real estate agent meet with the property appraiser to point out improvements to the property and show recent receipts the owner needs to prove or other improvements that have been made.

“It’s also a good idea to try to find an appraiser who is familiar with your area,” she says.

Consumers are allowed to challenge the rating and provide additional comparisons for review, Sklar said.

“If the appraisal is less than the value, the buyer can also make up the difference in cash,” she says. “A low valuation doesn’t always mean the lender won’t give a loan.”

Homeowners can’t buy appraisals and just get a second one, Hackett says.

“As a lender, we are not allowed to get a second appraisal unless the first appraisal is grossly incorrect,” he says. “It would be extremely rare because the lender selects the appraisal or at least the appraisal management company. We do extensive due diligence on appraisers before hiring them as they determine the value of the collateral backing the loan and are crucial to the lending process. “

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