A low appraisal is not the end of the world, and not all appraisals are accurate. The following steps will help you deal with an appraisal that has come in lower then expected.

Whether you are the buyer or seller, it is important that the appraisal is accurate.  For the buyer, a low appraisal means lower finance so they have to pay the difference between the lower mortgage and the asking price in cash.  For the seller, it means they may find their home hard to sell because their asking price is higher than the appraisal.

It is possible to have another appraisal carried out of you are unhappy with the first, although you would likely have to pay for it. However, if you ae the seller that should be no hardship because you can add the cost to your asking price.

Keep in mind that, while the lender is not permitted to communicate with the appraiser, you can.

1. Read the Appraisal Report Carefully

First check that the report is absolutely accurate with the details of the house in question. Make sure that each room is included and accurately measured. It is not unknown for a room to be missing that affects the entire comparative appraisal, or even for measurements to be wrongly recorded.  Appraisers are human like the rest of us, and it is easy for a number to be misread or wrongly transcribed to a report.

Also check the comparables used.  If you own the property, you should know better than anybody whether the comps used in your area are fair in relation to their comparison with your own home. Maybe the area used is a poorer area and homes sell cheaper, even though it might be only a half-mile from you, or perhaps there have been large numbers of foreclosures or short sales in the comparable are used.

It’s not unusual for other parts of town with similar designs of home as yours to be used as comparables if no real estate has change hands in your immediate area for some time. Sometimes the improvements you have made to your home are not given consideration. You can communicate this information to seller because the low appraisal will reduce their mortgage or home loan.

If for any reason you feel that the comps used were not representative of the property, or that it has not been accurately appraised, then work with your agent to prepare an appeal to the appraiser through your mortgage advisor. The same applies to both seller and buyer.

There are no guarantees that the appeal will be successful, but it is certainly worth trying. If that fails, ask your agent and mortgage professional to ask the lender for a second appraisal.  Lenders will sometimes do this if the professionals working for you have a good reputation and you case is strong.

2.  Low Appraisal Negotiation

The home appraisal is the basis on which the buyer receives finance from their building society or bank. If the seller is not prepared to reduce the price to the appraisal level, then both can get together to discuss a compromise. If the buyer really likes the property and wants to buy it, they may be prepared to make a larger cash payment in order to secure it.

Sometimes the two parties go 50% between the two prices, the seller reducing the asking price and the buyer paying extra cash. Only consider this type of negotiation if you cannot have the appraisal altered and the lender refuses a second opinion. The buyer can also refuse the offer and wait for a higher one, but that can be risky.

3.  Cancel the Transaction

The only other option is to cancel the transaction. If the seller is not prepared to lower the asking price and the buyer is not prepared to pay the difference in cash, there is no other option.  The buyer could then switch lenders and seek a new appraisal, both parties now aware of the problem.  This might give the seller time to correct any problems with the property or deal with any factors raised in the original low appraisal.

Generally, the best action to take is first to assess whether or not it is worth challenging the low appraisal, taking the advice of a professional mortgage advisor. If that fails, then the buyer and seller should get together and negotiate a price suitable to each of them – that will be determined by how desperate each is to buy or sell.