How to manage a low home appraisal value

Just as you'll need to get a home inspection before you purchase a new house, lenders will secure an appraisal of the property's value from an independent appraiser. While the property appraisal you get when purchasing a home is different than the appraisal conducted by county tax officials for the purposes of assessing property taxes, the two appraisals do sometimes influence each other.

Appraisers will tour the home and use prices recently paid for comparable properties to judge the true market value of a property. They will look at the condition of the home, the size of the lot, newness of appliances, and any renovations or additions that might have added value since the home was last appraised. Unlike a home inspection, the appraisal will not list potential dangers or damage to the home.

Lenders use these appraisals to gauge how much they should lend a buyer to purchase that house. Knowing the true market value of the property protects them in the event the purchaser defaults on the loan.

If you're the seller of the home, it's a good idea to get your home appraised before putting it on the market. The home appraisal, combined with current market rates can be a helpful tool when determining the selling price of your home. It can also give you leverage in negotiations since you can prove the value of the home to potential buyers.

What happens if you get a low appraisal on a home? There are two possibilities:

• You may not be approved for as large a loan. This could impact your ability to buy the home. If the seller doesn't lower the asking price and the loan you're approved for doesn't cover the whole price, you'll either have to pay the difference out of pocket or look for a different home that you can afford.
• The purchase agreement may be nullified completely. Sometimes, it's stipulated that a lower-than-expected appraisal will cancel the deal. In this case, you could put in a new offer at a different price to try again.

Sometimes, the two parties can still manage to renegotiate their agreement and meet somewhere in the middle of their initial price and the price mentioned in the appraisal. Even if the seller doesn't agree with the low appraisal, he may be willing to lower the price a little or use his own appraisal as justification for the asking price.

When conducted by qualified appraisers, high appraisals that come in above the negotiated purchase prices are relatively rare occurrences. Both parties should obtain an appraisal so that they know the worth of the home and are prepared for negotiations over the price.

The best home appraisal tip is to make sure the initial appraiser chosen by you or your lender has a license, experience and a knowledge of the neighborhood. But what recourse do you have if you think the appraiser arrived at a faulty number? If you think the initial appraisal you received is mistaken, you can request a revision or a second appraisal. The appeal for a revision is typically submitted by the buyer's mortgage lender. Reasonable grounds for an appeal might include:

• The condition of the home or lot being appraised is incorrectly described
• The appraisal failed to take into consideration improvements of the property
• The comparable properties being used as price benchmarks for value are not truly comparable

Any appeal should include accompanying documentation that proves your case, especially data on the sale prices of comparable houses nearby. Since they weigh heavily on the appraised value of any home, you'll want to pay special attention to providing information about the functionality of the floor plan and the condition of the kitchen and bathrooms relative to comparable homes nearby.

You may also want a second appraisal if you feel that that the first appraiser was inexperienced or was not thorough. However, while this appraisal may help your negotiations with the sale, you generally cannot submit your own appraisal to the lender. You'll pick up the tab as well, and home appraisals typically cost in the neighborhood of $400 to $500. In extreme cases, would-be homebuyers who are unhappy with their appraisal can file a complaint with the state licensing board.

Throughout the mortgage process, you want to work with a lender you can trust. Citizens uses certified, local appraisers to make sure you get the most accurate value for your mortgage. For more information on home loans and the home appraisal process, call one of our home loan advisors at 1-888-514-2300.