Low Appraisal on Your Home? A Reconsideration of Value Might Save the Sale

If you’ve received an exceptional offer on your home and the appraisal comes in unexpectedly low, don’t throw in the towel. The official appraised value of your home is based on the appraiser’s professional opinion and even professionals sometimes make mistakes. If you suspect this is the case and have evidence to back it up, you may be able to save the sale if you can convince the appraiser to reconsider.

For this article, we spoke with top real estate agent Ethan Goodrich of Compass in Boston; Diana Benson, SRA, IFA of Benson Appraisals in the greater Phoenix area; and HomeLight lending expert, Richie Helali.

Reconsideration of value process

Approximately 9% of home appraisals come in below the sales price. Appraisers have difficult jobs in ordinary times, but these are not ordinary times. During the pandemic there has been a shortage of available homes in a hot market. On top of this, appraisers are unable to view homes in the field, all of which have combined to cause appraisals to come in low 20% of the time. If your home appraisal has come in low, you’re not alone. And you’re not without options. The first step to saving the sale is to request a reconsideration of value (ROV).

An ROV is the process by which a seller or buyer disputes the appraisal value of the home by pointing out specific errors on the appraisal. Either party may appeal to the lender, usually in writing, to challenge the value assigned to the home. If the buyer plans to request an ROV, you and your agent will most likely be asked to provide more information about the property and the market.

You will take the following steps in the ROV process:

1. Request a copy of the appraisal. The seller doesn’t ordinarily see the appraisal, which is ordered by the buyer’s mortgage company. However, if the appraisal comes in low, you will most likely be notified and given a copy of the report. If you’re not, you may request a copy and begin the ROV process yourself.
2. Review the appraisal report with your agent to determine what factors contributed to the low appraisal and if mistakes have been made. Your property is the subject, sales of similar homes in your neighborhood are comps.
3. Contact the buyer’s lender for an ROV form. If the lender doesn’t have a standard ROV form, you can use this form, or send the lender a letter or email.
4. Gather evidence that the appraisal is inaccurate. Your real estate agent is the best source for comparable home sales and MLS listings.
5. List 3-4 comparable home sales on the form (or in your letter or email). Ideally, these homes sold will be similar properties in your neighborhood that sold recently at or above your sales price.
6. List any additional inaccuracies, which may include recent property upgrades or repairs, or any misstatements of home or neighborhood characteristics.
7. Include all documentation supporting the ROV. This means MLS listings for comps, a floor plan of your home (if necessary), and documentation supporting recent upgrades, repairs or improvements to the home.
8. Send the ROV request to the buyer’s lender. The lender will forward your ROV form to the original appraiser, who has two business days to reconsider the appraisal, provide suggestions for a more positive result, or let you know why they must reject the ROV.

The ROV process is different for VA loans. When the buyer is financing with a VA loan, the appraiser must notify the lender if she suspects the appraisal will come in low. This is called invoking the Tidewater Initiative and allows buyers to challenge a low appraisal before it is official. The lender, who has two days to provide additional comps that support the purchase price, will turn to the buyer’s agent for assistance with the comps.

If the Tidewater process fails to support the purchase price, the appraiser will include a written explanation. If the official appraisal still comes in low, the buyer or seller may appeal with an ROV.

Factors that affect a home value in appraisals

To get a fair market value on the property, the appraisal service will go to the home to evaluate the physical property. They may take photos of the property to assist with their valuation. In addition, the appraiser uses software to compare market data of recent similar properties in your neighborhood. The factors that go into your home appraisal include:

Property characteristics. The appraiser will evaluate the physical features of your property and the condition it’s in, taking into consideration:

• Age and size of your home and the lot it’s on
• Additional features such as garage, additional living spaces, outdoor amenities
• General property condition (how well maintained it is)
• Type and condition of interior and exterior materials, appliances, attic and basement
• Home improvements, repairs and upgrades

Neighborhood characteristics. The neighborhood surrounding your property affects the value of your home, including:

• Location (urban, suburban, rural)
• Proximity to businesses
• Condition of nearby properties
• Desirability of neighborhood

Value of comparable properties. This means prices of similar homes that recently sold in your neighborhood. Comparable homes will be similar to yours in size, amenities, age, and condition.

Below are some of the factors that can make your appraisal low:

• Market values have started to change
• Nearby property values have been artificially inflated by cash sales
• There haven’t been recent or nearby home sales to accurately compare your property
• The appraiser did a drive by appraisal and relied on available data to determine a value
• The appraiser is unaware of upgrades or repairs made to your home
• The appraiser is inexperienced or new to the area
• A clerical error has been made
• You’ve overpriced your home
• The property isn’t well-maintained

What considerations to evaluate in the low appraisal

As mentioned above, there are several ways to make your appeal to the appraiser. Be sure to list any errors or misstatements about the property. However, unless these are large mistakes, it’s unlikely that these will make a substantial difference. Be sure to include recent comparisons of property sales.

Request based on home improvements or upgrades. If you’ve made repairs in the last 10-15 years, provide proof. Be sure to provide records for any repairs or improvements that aren’t visible to the human eye.These might include additional insulation, an HVAC upgrade, repairing the roof, etc.

For example, Benson says, a water stain on the ceiling is going to tell the appraiser that your roof is leaking and devalue the property. The appraiser has no way of knowing that you repaired the roof and haven’t gotten around to re-painting the ceiling.

Request based on incorrect appraisal analysis or data. You can request an ROV if the property data in the report is inaccurate. You’ll need to explain the discrepancies between the report and the actual property. If there is a measurement error, provide the floor plan (which you can draw yourself if necessary) with the correct measurements.

Request based on different sales data. Did the appraiser mistakenly use a comp that was sold in foreclosure? Did a similar home close within a few days of the appraisal? A home sale that was only a couple square feet larger than yours? List sales that are more recent, more proximate, and/or more similar to the comps the appraiser used.

An appraiser uses software to gather comparable sales data. If, for example, your home is 1,500 square feet, the data may ignore a recent sale for a 1,501-square-foot home in your neighborhood.

The appraiser doesn’t consider homes that are pending or under contract at the time of the appraisal. Keep in mind also that sales data may not have been available for comparable sales that closed a few days earlier than the appraisal.

Attach the MLS listings for the new sales data with a concise narrative explaining why each comparable property is better than those used by the appraiser.

Avoid these mistakes in an ROV

You want to put your best foot forward when completing the ROV form and provide the most accurate and clear information. Don’t make these mistakes:

Contacting the appraiser. The appraiser can only discuss the appraisal with the lender that requested it. This is the reason you must submit an ROV request to the buyer’s lender. 

Filling out an ROV without your agent’s expert help. Your real estate agent knows the market better than you do. They will be quick to find any mistakes the appraiser may have made in assessing your property and comparable sales.

Listing incomparable homes

• Not in your neighborhood
• With dissimilar characteristics — homes that are larger, newer, with recent upgrades or  amenities your home doesn’t have
• In which the buyer paid cash in order to secure a purchase at a price far above the value of the home
• Of lesser value. This can damage your appraisal

Listing home sales that are pending. An appraiser cannot use pending sales that haven’t closed or home listings in the appraisal.

Listing too many comps. Appraisals are based on 3-4 comparable home sales. Your ROV will be rejected if you list more.

Not providing enough information. Provide a detailed (but concise) explanation that explains any disparities or why the recent sales you provide are a better comparison of your property than the comps the appraiser used.

Providing too much information. Be concise in your explanations. No appraiser has time to read a 10-page ROV.

Getting emotional. The appraiser cannot be persuaded to value the property at the amount the buyer and seller need to make the sale happen.

Putting the appraiser on the defensive. Appraisers are licensed professionals. In fact, many appraisals go through an appraisal company, which fully vets the appraisal before submitting it to the lender. This doesn’t mean the appraisal is incorrect, but it does mean that your evidence needs to be convincing and factual. It should also be respectful. Don’t pick an argument or insult the appraiser by questioning their expertise. At the end of the day, it’s the appraiser who decides if they’re going to reevaluate the property.

Who pays for the ROV?

There is no charge for an ROV — you are asking the appraiser to reconsider the value of the property based on an error made in the official report. Keep in mind, though, that the appraiser isn’t obligated to reconsider.

What happens if the ROV is rejected?

An appraiser may reject an ROV that has incomparable comps or in which the discrepancy is insufficient to change the value. The appraiser will explain why the ROV was rejected — for example if a comparable property is larger, in a better neighborhood, or has recent upgrades — and offer suggestions. The seller or buyer can resubmit the ROV based on the appraiser’s suggestions.

What happens if the appraiser won’t reconsider?

Whether or not an appraiser is likely to reconsider depends on the accuracy of the evidence you provide. Halelie and Goodwin believe many appraisers are unlikely to change their appraisal. Benson says otherwise, “Appraisers are professionals. If we make a mistake on an appraisal, we want to correct it.” When an appraiser receives an ROV, they consider whether the appeal is an emotional one or whether an actual mistake has been made.

Next steps

If you cannot get the appraiser to reconsider, you do have other options to help save the sale. Consider:

Appealing to the lender for a second opinion. There is a charge to the buyer or the seller for a second appraisal. The lender will request a desk review or a field review from a different appraiser. For a desk review, a second appraiser will look the appraisal over to see if a mistake has been made. For a field review, another appraiser will look at the property to determine if a mistake has been made. Understand that a second review can be risky to the lender when it’s under review by the underwriter. The lender must have a very good reason to seek out a second appraisal.

Goodrich explains a particular case where a second appraisal was successful: We had a home under agreement at an amount below the asking price. We’d already been through emotional negotiations. And then the appraisal came in way below the purchase price. When an appraisal comes in low, before any negotiations take place between the seller and the buyer, the agent must do his due diligence and contest the appraisal. The appraiser refused to reconsider. Before the buyer and seller negotiated the difference, we went back to the lender with the same proof we used in the ROV and asked for a second appraisal.

Not only did the lender agree to a second opinion, but the lender paid for the second appraisal. The second appraisal came in higher but still below the purchase price. Sometimes the lender will average the value, but in this case the lender accepted the higher value. In some cases, the buyer and seller will split the difference between the appraisal and the purchase price, but in this case, the buyer wasn’t willing to lose the deal and paid the difference.

Extending the contract to allow the buyer to seek out a new lender. A buyer who has good credit, who is confident that a second appraisal will come in higher, and who wants to save the deal may seek out a new lender. Because the approval process can take time, the buyer and seller will have to negotiate a new closing date. Not all buyers will be willing to pay additional out of pocket expenses, including a second appraisal and inspection, especially with no guarantee that a second appraisal will come in higher.

Negotiating with the buyer to save the deal. Typically the seller and the buyer will meet in the middle between the purchase price and the appraised value and split the difference.

Extending the contract to allow the buyer time to make up the difference. If you’re not willing to negotiate the price and the buyer doesn’t want to walk away from the deal, the buyer may be able to get enough cash together from family gifts or by liquidating investments. You may need to negotiate a new closing date or a deadline for the buyer to scrape together the funds.

Relist your home. If you just can’t save the deal with an ROV, a second opinion, or negotiating with the buyer, the buyer may have to walk away from the sale. In a hot market, there’s a good chance that you will receive a better offer from a buyer who can waive the appraisal contingency or make an appraisal gap guarantee.

On the flip side, when prospective buyers see a home has been relisted, they’re going to wonder if there was a problem with the home inspection or the value, or if the seller was being unreasonable. Unfortunately, this can lead to fewer or lower offers. In fact, Helali says, many investors are looking specifically for homes that have been relisted because there’s a good chance the seller is willing to negotiate. The best outcome for the seller is to close the deal if at all possible.

A low appraisal isn’t the end of the line for your home sale

Don’t despair if you’ve received a low appraisal on your home. A reconsideration of value is the first step to saving the deal. The value on your property may be changed if the information you submit is valid and a change is warranted by professional appraisal standards. Meet with your agent to go over the appraisal and look for any discrepancies or oversights that will sway the appraiser to raise the value of your property and save the sale.

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