How to appeal or dispute an appraisal

For home sellers, an appraisal can help set an asking price and realistic expectations for their home sale. For buyers, appraisals are necessary to obtain financing from their mortgage lender.

A low appraisal can be a costly barrier to closing a deal, and it can even halt one in its tracks. With so much at stake, buyers and sellers may be asking themselves: How often do home appraisals come in low? Will a low appraisal ruin everything?

Low home appraisals aren’t a common occurrence, but they do happen. Luckily, you may have some recourse. Read on to learn how to appeal a home appraisal.

Why do appraisals come in low?

The market value of a home (i.e., the amount of money someone is willing to pay for a home) isn’t the same as the appraisal value, which reflects the bare bones value of the house — or how much it’s worth as collateral for financing. Market values heavily depend on the buyer’s emotion, whereas appraisal values depend on the house’s physical condition and market precedent.

In 2017, Fannie Mae commissioned two studies to understand what discrepancy there was, if there was any, between market values and appraisals. Their findings showed that appraisals came in low only 8% of the time and confirmed the contract price more often than not.

For that minority of appraisals that came in low, their research found that the low appraisals were driven by:

• Overbidding: Buyers will sometimes bid over the asking price of a home to secure it. And while this may get your offer accepted, it won’t help you secure financing. Mortgage lenders will only finance a home purchase that appraises for near or above the selling price.
• Limited or poor quality of comps: Comps, or “comparables” — homes in the area with similar features as the house being appraised — set the precedent that appraisers look to when determining the market value of a home. If there aren’t enough comps, or the comps in the area do not reflect the status of the home, then there might not be enough of a basis for the appraiser to valuate the home at the asking price.
• Rising housing prices: Even if you didn’t technically overbid according to the market conditions, the new market standards might not be reflected in your home appraisal. Appraisals look to precedent to set home sale prices — if not enough homes have sold at the new market standard, the home will not appraise for that value.

While homeowners might not have control over these factors, there is another reason that appraisals sometimes come in low that they can do something about: poor home appearance. Unlike a home inspector who evaluates the house from a strict structural perspective, a home appraiser is there to determine the value of a home, and a home’s appearance can impact this.

Homeowners, make sure to tidy your home’s interior and exterior in preparation for your appraiser to ensure a bad impression doesn’t color their valuation.

Is a low appraisal bad?

A low appraisal can slow a home sale, cost both the home seller and homeowner money, or even stop a deal entirely. In fact, the National Association of Realtors found that appraisal issues were the number one driver of delayed and terminated contracts in 2021, accounting for 25% of delays and 13% of terminated contracts.

No one wants a low appraisal, and its consequences can impact a buyer and seller differently. We broke down what a low appraisal means for both parties:

What a low appraisal means for the buyer

A low appraisal can be a barrier for buyers financing their home purchase with a mortgage because lenders will not approve a loan for more than the house’s appraised value. If buyers find themself in this position, they can either renegotiate the selling price with the homeowners, front the difference between the appraised value and the selling price, or walk away from the sale.

Keep in mind, though, that walking away from the sale at this point could mean losing the deposit that buyers put down as part of their accepted offer.

What a low appraisal means for the homeowner

If the homeowner has accepted an offer from a buyer using a mortgage, a low appraisal could kill the deal. To save the sale, a homeowner can choose to renegotiate their asking price with the buyer. If the sellers and buyers can’t reach a compromise, the homeowner might end up having to put their house back on the market.

Learn more about what happens when an appraisal doesn't match the offer

Can you dispute an appraisal?

Yes, you can contest an appraisal. However, it’s not as simple as it might seem, and there may be other solutions.For example, if there is an appraisal contingency, the buyer can renegotiate the sale price with the seller or walk away without losing any earnest money.

If you decide to proceed with contesting your home appraisal, you’ll need to focus on the facts. Lenders will only consider challenges when an appraiser has grossly miscalculated — generally 2% or more below the asking price — and when that miscalculation can be backed up by hard evidence.

How to appeal a home appraisal 

So your appraisal came in low. Don’t panic. Here’s how to appeal a home appraisal:

Review the appraisal

Your first step in appealing your appraisal is to collect concrete evidence that it is inaccurate. Remember, appraisers follow a strict code of ethics in order to remain unbiased in their assessment. In order to be successful, your appeal will need to be just as objective.

While reviewing the appraisal, look for the following:

• Clerical errors: Even appraisers make mistakes. Review their calculations to ensure that there are no omissions or miscalculations.
• Recent home improvements: Appraisers focus on precedent and look to the home’s past to assess its current value. If you made recent improvements that were not in the floorplans or comps the appraiser reviewed, you might have grounds for reconsideration.
• Superficial assessment: With long wait times and new pandemic protocols, lenders have started accepting desktop appraisals for home sales. This method uses digital methodology to evaluate the home without the benefit of an in-person walkthrough. These appraisals are overwhelmingly accurate, but appraisers can still make mistakes, especially without the opportunity to see a home in person. If your appraiser used this method, double-check to make sure they didn’t miscalculate things that might have been more obvious in person (like the size of the home and property).

Check the comparables

Comps are an essential baseline for appraisers, and inaccurate real estate comps can skew their appraised value dramatically. Go over those used by the appraiser to see if they are suitable matches for your home. Use the following prompts to guide your investigation:

• Physical characteristics. Do the comparables have similar features (i.e., an inground pool, updated primary bathroom, or mother-in-law suite)? Do they share similar square footage? Are they all the same type of property (i.e., a two-bedroom bungalow)?
• Location, location, location. The adage rings true when it comes to comparables. Are the comparables the appraiser used in close proximity? If not, look for comps in the same neighborhood as your home.
• Timing. Are the comps out of date? With a hot market, home values can change fast. Make sure the appraiser used the most recent comparables available.

If you have reason to believe the comparables are not, well, comparable to your home, be specific in your reasoning. Point out exactly why the comps are false equivalents and submit alternatives for additional clarity.

Learn how to find out how much a house sold for

Submit a reconsideration of value

Once you’ve gathered your evidence, submit it as part of your reconsideration of value. This formal process allows a borrower to request that an appraiser review their valuation to ensure accuracy. It is not and cannot contain a request for a different valuation of a home. 

Although rare, appraisers may change their appraised value if they agree with the evidence submitted.

Don’t be afraid to ask for help

Buyers and sellers are on the same team when it comes to an appraisal coming in at the selling price. To appeal, all parties will need to work together, and they’ll need to lean on the expertise of their real estate agent to help. Agents can be especially helpful in reviewing the intricacies of comparables and physical characteristics of a home.

When you’re ready to submit your reconsideration, work with your mortgage officer to present your findings in their firm’s preferred way. This will ensure that your appeal won’t be discounted because of formalities.

Don’t let a low appraisal stop your home sale

Home appraisals are overwhelmingly accurate, but if you feel like your home was undervalued, don’t let the appeal process intimidate you. Be proactive about preparing for your appraisal and understand your options if the appraisal comes in low. Remember, you’re not alone in your fight for a precise appraisal.