How the Home Appraisal Works in the Mortgage Process

In this blog, we will be covering low-home appraisal solutions for homebuyers and sellers. A home appraisal is the most important document for the lender. It protects the lender. It is documentation showing what the property is worth. In this article, we will cover the following important bullet points regarding home appraisal in the mortgage process. Sellers need to realize the art of pricing the home at the right price. We will also be covering the role of the home appraiser in how they appraise the various type of homes. In the following paragraphs, we will cover low-home appraisal solutions for homebuyers and sellers.

Home Appraisal in the Mortgage Process

A home appraisal is part of the mortgage approval process when borrowers apply for home loans. An appraisal is one of the most important factors in getting a final mortgage approval. This article is geared towards first-time homebuyers to educate them on the appraisal process during the mortgage process and solutions to a low-home appraisal. Just because buyers have the required down payment and are armed with a solid pre-approval does not mean that they are home free. The property under contract needs to appraise out to the purchase price.

Most of the time, most first-time home buyers or seasoned homebuyers do not have low-home appraisal issues. But there are times when a low-home appraisal can cause delays in the loan process. There are times when a low-home appraisal becomes a deal-breaker. In this article, we will cover the various options homebuyers have when faced with a low-home appraisal.

The Importance of Pricing the Listing Home

Most sellers who want to sell their homes consult with a professional licensed real estate agent. The real estate agent normally recommends a suggested listing price. The real estate agent normally does a market valuation study. This normally consists of recent comparable sales of similar and like properties of the subject property within a one-square-mile area.

Market Value Analysis

The real estate agent may consult with appraisers or other realtor’s in doing the market analysis study and will recommend to the home seller a suggested listing price. Most home sellers will also do their own market study. Eventually will come up with a listing price. There are sellers who feel that their home is worth much more than recent comparable sales. They list their homes at a higher market price.

Listing a home higher than recent comparable sales may become an issue when the home is under contract if the home buyer is getting a mortgage. Every home buyer who gets a residential mortgage is required to have an appraisal done on the subject property. A low-home appraisal is often a major issue when it comes to homes that are overpriced. An overpriced home does not mean that the home is not worth the value.

Custom and Unique Homes

Many home sellers may have customized their homes by having special amenities and can encounter low-home appraisal issues. The following amenities can not add value to the home:

• outdoor kitchen, custom millwork
• custom windows
• custom flooring
• high end electrical and plumbing fixtures

Other amenities may add value to the home but will not affect a higher value on the property appraisal.

What are Home Appraisers Mainly Concerned With

Residential mortgage appraisers are mainly concerned with similar and like properties within a one-square-mile radius. They do not take certain luxuries into account when giving the subject property a market-appraised value. There are certain aspects to the subject property that the appraiser can add value to.

The appraiser can give a higher valuation such as the following additional adjustment for the subject property is a waterfront property. Gulf course property. Being back on a green belt. Being on a larger lot. There are many cases where buyers still want the home badly even with a low appraisal. Low-home appraisal issues are not common. It normally happens in ten percent of all residential mortgage loans I originate. Low-Home Appraisal does cause delays in the mortgage process and can delay closing dates.

Low Home Appraisal and Low Comparable

Lenders will still fund a mortgage loan with a low-home appraisal. But it all comes to money and funding.  Lenders will only go off the appraised value of the subject property. For example, let’s go over a case scenario:

• The subject property purchase price is $120,000
• The appraisal comes back at $100,000
• The borrower is going through an FHA Loan

The lender will value the property at $100,000 and not the $120,000.

Seller Lowering Sales Price To Low Home Appraised Value

If the home seller is not willing to reduce the purchase price down to $100,000 and still wants $120,000 and the home buyer still wants the property, the home buyer will be required to come up with 3.5% of the $100,000 appraised value plus the additional $20,000. However, when there is a low appraisal on a subject property, there are solutions where the deal can still go through if both parties, the home buyer and home seller, can come to terms.

Solutions To Low Home Appraisal Issues

There are multiple solutions to low-home appraisal issues. If the appraisal comes in within an insignificant low appraisal value such as a matter of a few thousand, the home seller normally lowers the purchase price. If the home seller does not want to lower the purchase price, the home buyer can normally afford a few thousand increases if they really want the home.

The issue comes in when the low appraisal is a substantial amount lower than the actual purchase price. Many times, a home buyer will walk away from the subject home purchase if the home seller does not lower the purchase price to the appraised value. However, if the home buyer is in love with the subject property and the home seller is not willing to lower the sales price of the home, then an appraisal rebuttal can be done.

Home Appraisal Rebuttal To Contest Low Appraisal

Appraisal rebuttals are often difficult if you have no evidence to contest low-home appraisal. The mortgage loan originator needs to complete an appraisal rebuttal request form. Normally the seller’s real estate agent provides proof and completes the appraisal rebuttal form. It then gets submitted to the home buyer’s mortgage company.

Things that the seller’s real estate agent needs to complete is a list of comparable recent sales that is similar to the subject property within a one-square-mile radius. There is a comment section that the seller’s realtor needs to complete as well for the reason for the appraisal rebuttal and why he or she feels the market valuation should be higher. Properties that are currently listed but not sold cannot be used as evidence to justify the appraisal rebuttal. Only closed properties can be used.

How Do Comparable Sales on Appraisals Work?

The properties need to be recent sales and properties that are similar to the subject property as follows:

• square footage
• lot size
• location
• bedrooms
• bathrooms
• adjustments such as whether the property is a waterfront property or golf course property

Home Appraisal Rebuttal Request

Once the form is completed and submitted to the home buyer’s mortgage loan originator, the mortgage loan originator will submit the completed appraisal rebuttal form to the Appraisal Management Company. The AMC will question the actual appraiser who did the home appraisal. The appraiser will review the appraisal rebuttal and will make comments and submit the appraiser rebuttal form back to the supervisor of the Appraisal Management Company.

The supervisor of the Appraisal Management Company will sign off on the final appraisal rebuttal. If the appraiser stands by his or her low-home appraisal value, it will be noted and the appraiser’s comments will be attached justifying the low-home appraisal. If the appraiser decides that the subject property warrants a higher appraisal valuation,  a modified appraisal with the new price adjustment will be issued. Appraisal rebuttals normally will delay the mortgage process for about one week.

If Home Sellers Will Not Lower Sales Price On Low Home Appraisal

Most home sellers do want to work with home buyers in the event a low appraisal happens. However, there are situations where home sellers either do not cooperate. There are sellers who do not want to lower the sales price or cannot lower the sales price because they just owe too much money on their current mortgage balance. John Strange, a senior mortgage loan originator at Mortgage Lenders for Bad Credit says the following about the home appraisal process as follows:

Another solution to resolve a low home appraisal issue is to see whether a second appraisal is warranted. If the first appraiser and Appraisal Management Company were extremely unreasonable and buyers and sellers have justified comparable sales they feel a second appraisal is warranted, it may be another solution to solve the low-home appraisal issue.

Need the lender’s blessing in order to order a second appraisal and see whether the lender will even allow it. If there are no valid comparable sales and solid reasons to warrant a higher appraisal valuation, the second appraisal will be a waste of time and money.

Other Creative Solutions to Low Home Appraisal Issues

Most home buyers get a seller concession towards their closing costs on their home purchase. Many times when I have low appraisal issues, one of the ways we resolve low appraisal issues is when both the home buyers and home sellers give up a little. The home buyer will give up their seller concessions towards their closing costs and the home sellers will come down on the price of their home. If the home buyer really needs help with closing costs and giving up the seller’s concession will affect their ability to close their loan, they can request a lender’s credit towards their closing costs on their home purchase.

Lenders Credit Towards Closing Costs

Lenders can give borrowers a slightly higher mortgage rate in lieu give them a lender’s credit towards closing costs. This can offset the home buyer’s closing costs or eliminate the closing costs altogether.

Getting a second mortgage from the home seller is normally not allowed so that possibility is out of the question. All in all, if there is a will, there is a way.  Most low-home appraisal issues get resolved over time and if both the home buyers and home sellers can team up to resolve the low-home appraisal issue, the deal will get.