Buying a home is an exciting journey filled with many steps, and one of the crucial ones is reviewing your appraisal report. It's important to pay close attention to every detail, as this can significantly impact your purchase. From checking for errors to negotiating with the seller, understanding how to handle each aspect can make all the difference in securing your dream home.
Review the Appraisal Report
It's crucial to examine that appraisal report thoroughly. Get your hands on it and review it carefully, alongside your real estate agent or mortgage lender.
- Check for Errors: Ensure every property detail is correct. Did the appraiser count all the rooms? Is the square footage accurate?
- Look for Missing Comparables: Sometimes, appraisers overlook relevant comparable sales. Your real estate agent can help find local recent sales that prove your home's worth. They can also highlight renovations or upgrades that might not have made it into the initial report.
- Highlight Improvements: If you've made significant upgrades, make sure they're reflected. Gather your receipts, photos, and any documentation of these improvements.
- Formal Request for Reconsideration: If you've spotted inaccuracies, submit a formal request for reconsideration to the mortgage lender. Explain where the appraiser got it wrong and back your claims up with evidence like new comparables or proof of upgrades. Be clear and concise.
- Ask for a Second Opinion: If your first request doesn't yield results, ask your lender about getting a second appraisal. This isn't guaranteed, and it might come out of your pocket, but sometimes a fresh set of eyes can see what the first appraiser missed.
Getting down to business with your appraisal review is crucial. You want every aspect of your property's true value to be recognized. Scrutinize, submit, and don't settle until you've given it your all.
Request a Reconsideration of Value
If you've found errors in the appraisal report, it's time to prepare for a Reconsideration of Value (ROV). Your goal is to present a strong case that convinces the appraiser or lender that your home's true worth is higher.
Start by drafting a formal letter. Keep it professional while clearly stating your case.
- Gather Your Evidence
Collect new comparables—sales of similar homes in your area that support your claim. Enlist your real estate agent, who should know the area well. You need at least three strong comparables that showcase your home's value. - Document Upgrades
If you've made improvements, gather receipts and photos. Include everything from major renovations to smaller upgrades that add value. This documentation is crucial evidence. - Make the Ask
Submit your ROV to the mortgage lender. Include a cover letter that clearly outlines your findings and evidence. Highlight improvements and comparables with clear, concise backing data. Use bullet points or charts for clarity. - Be Patient but Persistent
Once submitted, follow up appropriately. Make sure your lender or appraiser knows you're serious without being a nuisance.
Handling an ROV requires effort, but with thorough preparation, you can potentially swing that appraisal in your favor. Remember, it's your home and your value—you've got the motivation to make it happen.
Negotiate with the Seller
If the appraisal comes in low, it's time to negotiate with the seller. Approach this conversation with transparency and solid reasoning.
- Propose a Price Reduction: Ask if the seller would be willing to lower the asking price to match the appraisal value. Explain how this ensures the sale goes through smoothly. Sometimes sellers just need to understand the situation from your perspective.
- Meet in the Middle: If lowering the price to the appraisal value isn't an option, suggest splitting the difference. For example, if the house is under contract for $300,000 but appraised at $280,000, propose meeting at $290,000. This compromise can keep the deal alive and feel fair for both parties.
- Seller Concessions: If the seller hesitates to alter the price, suggest they cover some of the closing costs. This can help balance the scales without directly impacting the sale price.
- Leverage Your Agent: Bring your real estate agent into the negotiation. They can provide comparisons, highlight other appraisals in the area, and present a strong case for adjusting expectations.
- Emphasize Your Readiness: If you're prepared to close quickly, use that as a selling point. Let the seller know you're committed and well-financed, which can be appealing if they're looking for a smooth, efficient sale.
Approaching this negotiation with confidence and clarity can turn a challenging situation into a positive outcome. The goal is to find a fair solution that works for both parties.
Consider Alternatives
If negotiations with the seller don't pan out, don't lose hope. There are still options to keep your dream home within reach.
- Increasing Your Down Payment: Consider covering the appraisal gap out of pocket. This can bridge the difference between the appraised value and the contract price. It's an investment in securing the home you want.
- Requesting a Second Appraisal: If you suspect the initial appraisal was off, ask your lender for another one. This will likely be at your expense, but a different appraiser might provide a fresh perspective that works in your favor.
- Utilize the Appraisal Contingency: If increasing your investment or waiting for another appraisal isn't feasible, you can use the appraisal contingency in your contract. This clause allows you to walk away without losing your earnest money if the house appraises too low.
Remember, a low appraisal isn't the end of your home-buying journey. It might mean this particular house isn't the right fit financially. Sometimes, stepping back opens the door to an even better opportunity.
Keep your spirits up and your eyes open. With patience and persistence, you'll find the right home that meets both your needs and your budget. Happy house hunting!
Remember, buying a home is about finding a place that feels right for you. By being thorough in reviewing your appraisal report and negotiating effectively, you're setting yourself up for success. Trust that with determination and smart strategies, you'll find the perfect place to call home.
- National Association of Realtors. Profile of Home Buyers and Sellers. Washington, DC: NAR; 2021.
- Appraisal Institute. The Appraisal of Real Estate. 15th ed. Chicago, IL: Appraisal Institute; 2020.
- Consumer Financial Protection Bureau. What is an appraisal and how does it work? Washington, DC: CFPB; 2019.