A low home appraisal is a bummer when you’re trying to refinance a mortgage.
If the appraisal is too low — meaning your home’s value is less than what you owe on the mortgage — you’ll have to put off refinancing until you’ve built some equity. A lower-than-expected appraisal can also dash hopes of getting rid of private mortgage insurance on a conventional loan, or reduce the amount of cash the lender will let you pocket in a cash-out refinance.
So naturally when you apply for refinancing, you hope for the highest possible valuation. Here’s what to do if the appraisal comes in low.
Check the appraisal report for accuracy
The lender is required to send you a free copy of the appraisal report at least three days before the loan closes. The report documents a slew of property details that the appraiser considered in the valuation. Even the best appraisers can make mistakes, so scour the report to make sure all the particulars are correct, such as:
- Number of bedrooms and bathrooms.
- Square footage.
- Amenities, including fireplaces, patios and pools.
- Garage size.
- Additional features, such as energy-efficient items.
Also make sure the appraiser didn’t miss anything, such as major home improvements that could increase value.
Evaluate the ‘comps’
To help determine home value, appraisers consider prices of comparable homes that were recently sold in the area, known as real estate comps.
Check which homes were used. Were they truly comparable? How nearby are the homes, and how recently were they sold?
You may want to ask a friendly real estate agent familiar with your neighborhood for a list of recent comparable sales.
Contact the lender
Document any mistakes or missing information from the report as well as any additional information about comparable sales that you think should be considered. Then submit that written information to your lender and ask for a review of the appraisal to address the issues. Although you ultimately pay for the appraisal, the appraiser actually works for the lender. So send any feedback about the appraisal to the lender, not the appraiser.
The information you provide could prompt the appraiser to revise the valuation, but only if the additional details are relevant and significant enough to move the needle. You can also ask for a second appraisal or start over with a different lender. But appraisals typically cost at least a few hundred dollars, and there’s no guarantee the next appraisal will come in higher.
More tips for handling low refinance appraisals
- Understand that appraisals are different from online home value estimates. The appraisal isn’t wrong just because it’s lower than the ballpark figure you got online. Home appraisals take more details into account than algorithms can, so use online estimates as guidelines only.
- Be objective. Home might be where the heart is, but try not to take the appraisal personally. View your property as an outsider would, warts and all.
- Stick to the facts and be specific. If you think the valuation is too low, address the information in the appraisal and provide details to back up your assertions.