How to Contest a Real Estate Appraisal

If you’re purchasing a home or refinancing your existing property, you’ll need a home appraisal. A home appraisal provides a property value that your mortgage lender uses to determine how much you’re able to borrow. When a home appraisal comes in at a lower value than your agreed-upon price or too low for you to qualify for a refinance loan, there are options to contest the low appraisal value.

How is a Real Estate Appraisal Calculated?

Home appraisals are first calculated using an Automated Valuation Model (AVM), which analyzes data such as public records and the sales price of comparable homes that have recently sold to generate an estimate. Then appraisals are typically reviewed by two or three other appraisers, and finally by the loan underwriter.

How a Low Home Appraisal Impacts the Purchase Process

If you’re purchasing a home and the real estate appraisal comes in with a value lower than the agreed-upon selling price, your mortgage lender may deny your loan application. In this case, you’ll need to negotiate with the seller to lower the price or make up the difference in cash. You can also contest the real estate appraisal and try to get the appraiser to modify the report with a higher value. If you’re seeking a refinance loan, a low appraisal impacts the amount your lender will allow you to borrow.

As a seller, you also want your property to be appraised at a favorable value so that you’re not faced with reducing the selling price to help your buyer secure financing.

What to Do if Your Appraisal Comes in Too Low

If your appraisal value comes in too low to secure financing, the first step is to provide a written rebuttal to your lender. Your written rebuttal should include any pertinent information that you feel the appraisers overlooked in calculating your property’s value. Sometimes, the seller is in a better position to offer this rebuttal, having more information about the property than buyers.

Outline Overlooked Information and Recent Data

Sometimes, appraisal results are skewed due to unique situations relating to properties used as comps. For instance, if a comparable home has recently sold but was not listed on the MLS because it sold before being formally listed, appraisers may not have access to this data unless you point it out.

Another situation that can impact appraisal values is comparable properties recently sold at a low price. For example, if parents recently sold a property to their children for a price far below market value, and this property is included as a comp in your appraisal, it could skew the value of your home downward.

Point Out Any Discrepancies in the Appraisal Report

Carefully evaluate the details regarding your property in the appraisal report. A seemingly simple error such as describing the property as having one bathroom instead of two can lead appraisers to rely on the wrong comparable properties, inadvertently reducing the appraised value of your property.

Such details might include the number of bedrooms or bathrooms, updates such as new windows that aren’t included in the appraisal report, and any other improvements that have gone unnoticed. Look for other comps that have sold at higher prices than the comps used in your appraisal. Usually any property within a mile or so of your home that has sold within the last 90 days is fair game, provided that it has similar characteristics (square footage, number of bedrooms and bathrooms, attached garage, etc.).

Low Appraisal Options for Sellers

If you’re selling your property and your home is appraised at a value lower than you’d like, you can make improvements that will increase the value of your property. If the appraisal is conducted as part of a sale, obviously this is less convenient. If your buyer does not secure financing as a result of the appraisal and cancels the transaction, making improvements before the next offer comes in is an option. Additionally, you might choose to have an appraisal done prior to listing your home for sale and make improvements to boost your property value before listing your home.

If you have questions about the process, a Redfin real estate agent can help.