3 tips for Low Home Appraisal? Here’s How Buyers Can Navigate the Situation

You found the perfect home. You made an offer, and it was accepted. Everything is going smoothly until you get back the appraisal and it was much lower than expected.

As a buyer, what can you do in this situation?

recent article from realtor.com outlined the different ways buyers can move forward if they find themselves dealing with a low appraisal, including:

  • Get a second opinion. If you think the first appraisal was inaccurate — and incorrectly low — you can opt to order a second appraisal. Just keep in mind that you’ll be on the hook for the fee, and there’s no guarantee that there will be a different result.
  • Negotiate with the sellers. If the home you’re planning to buy was appraised for less than what you agreed to pay for it, another option is to negotiate with the sellers. A low appraisal might indicate that their house might not appraise for enough even if they put their house back on the market and receive an offer from another buyer. The seller may be willing to work with you on the price, rather than risk having the same thing occur a second time.
  • Walk away. If you’re buying a home with a mortgage, the lender will only loan you as much as the home’s appraised value. So, if the home appraises low — and the sellers won’t budge on the price — you might have no option other than to walk away from the purchase.

Why Millennials and Gen Z Feel They Need to Win the Lottery to Ever Own a Home

People often joke about needing to win the lottery in order to be able to afford something, so it’s not that surprising that a recent poll found that 52% of Gen Z and 57% of Millennials feel like they’d need to hit the jackpot in order to buy a home. There’s literally a show on HGTV that follows recent lottery winners around as they search for their dream home!

Unfortunately, while a winning lotto ticket would certainly make buying a home easier, it isn’t a surefire plan to become a homeowner.

But apparently a good portion of Gen Z must have had a plan in place, because Business Insider recently reported that they outpaced Millennials and Gen X’ers in the race to homeownership at a young age. Thirty percent of them owned a home of their own by the age of 25.

Sounds like they’ve either got a secret formula to success, or some luck on their side, right? How is it that a third of the youngest generation is out there owning homes, when it’s been one of the toughest markets in history over the past few years?

Well, not to take anything away from them, because it’s quite a feat to have done so given the recent market conditions, but they’re not actually outpacing the two previous generations by all that much. Twenty-eight percent of Millennials and 27% of Gen X owned a home when they were 25-years old as well. So, those stats are pretty much in line with history over the past couple of generations.

And Millennials as a whole aren’t doing that poorly either. RentCafe recently reported that the majority of them are now homeowners, as of 2022. As you can see in the chart below, they haven’t quite caught up to Gen X, but they’re actually well ahead of Gen Z in terms of the actual number of homeowners.

Source: RentCafe

So, the attention-grabbing headlines about Gen Z doing so much better are just about the small edge they had at the young age of 25.

You can’t chalk up all of those young homeowners to having won the lottery. Sure, perhaps some did, or had more career luck or financial help on their side. But you also can’t chalk up not being able to buy a house entirely on the current market, home prices, or mortgage rates. In fact, a small percentage more young homebuyers were able to do so during a very competitive, high-priced market.

Over the course of decades, statistics show that about a third of a generation will buy a house before they’re 25-years old. And if you traveled back in time, you’d probably find plenty of headlines saying that the younger people at the time felt that homeownership was nearly impossible, and they’d need to win the lottery to ever have a chance at owning a home of their own. Yet a third of them figured it out. And, as time passed, more and more of them got there as well.

It’s never super easy for anyone to buy a house, let alone a younger person. But it can be done, regardless of the current real estate market you’re facing. And if buying a house before you’re 25 doesn’t happen, it’s by no means a sign that you won’t get there.

What’s the secret sauce to getting there at the youngest age possible?

While winning the lottery would be great, it really boils down to your desire to make it a reality; focusing on what you need to do to get there; and putting in the time and effort it takes.

The Takeaway:

A recent poll found that 52% of Gen Z and 57% of Millennials feel like they’d need to hit the jackpot in order to buy a home. Yet a third of both those generations owned a house before they even hit 25-years old!

It’s not easy for most people to buy a house, let alone when you’re on the younger side. But it can be done, even when the market is highly competitive and conditions aren’t ideal. And even if you’re not able to buy a house before you’re 25, don’t think that you’ll never be able to.

Winning the lottery would be great and certainly help, but the real secret to buying a home is having the desire to make it a reality: Focusing on what you need to do to get there, and putting in the time and effort it takes.

8 Common Questions Home Buyers Have about Appraisals

Unless you’re a real estate agent, you probably don’t think about home appraisals more than a few times in your life. (Considering how much time real estate agents spend worrying about them, you’re probably better off!) But when you buy a house, chances are a third-party appraiser will need to inspect the house and analyze whether you’re paying an appropriate amount for it.

That’s a good thing because it ensures you’re not overpaying for a house, but sometimes an appraiser can make mistakes, or just has trouble justifying the amount you’re willing to pay due to a lack of data, or not understanding the current local market.

Ideally, your appraisal will come and go without a hitch, and you might not even know it happened the next time you buy a house. But the more you know about the home-buying process, the better off you’ll be. So let’s take a look at 8 common questions buyers have about home appraisals:

1) Do I really need one?

 

A lot of buyers are totally comfortable with the amount they’re offering for a house, and they don’t feel the need to have someone beyond the real estate agent they trust come in and say they’re paying the right amount. Unfortunately, if you’re getting a mortgage, which a lot of people do, your lender will most likely require that an appraisal be done so that they can be assured the house is worth what you’re willing to pay for it.

2) Who pays for it?

 

Umm, ahem, even if you don’t want one, and it’s more for the lender’s benefit, you actually pay for it. Usually, you’ll end up paying for it at the closing as one of the various closing costs, so it probably won’t feel like an added cost, but it does surprise many buyers to find out it’s something they have to pay for even though it’s the lender who really wants it more than anyone else.

3) When is the appraisal going to get done?

 

Good question! Unfortunately, delayed appraisals are one of the things that lenders claim is holding up getting your loan approved, so don’t be surprised if you and your agent are asking this very question. It’s something agents find themselves asking lenders quite often, but getting a firm answer can be difficult. It’s really in the hands of your lender to order one, so it depends upon when they get around to doing it. And then it depends upon the appraiser’s availability as to when he or she will actually schedule a day and time to inspect the house.

4) Where is the appraisal?

 

Just because the appraiser finally gets over to the house to inspect it, that doesn’t mean the appraisal is done yet. They still need to do their analysis and write up a report. Ideally, the appraiser will do it within a day or two, but (again!) it’s really out of your and your agent’s hands as to when it actually gets done.

But even once it’s done, you still might be wondering where it is! You might be paying for it, but you also might never even see a copy of it. You’re entitled to a copy upon request, so if they don’t send it to you, feel free to ask for it. The upshot to not seeing it is that it’s a good sign there was no issue with it, and your lender just filed it away as complete and satisfactory.

5) Where did they come up with that number?

 

On the other hand, you’ll probably become way more familiar with what an appraisal looks like if there’s an issue with the amount the appraiser says the house is worth. In that case, you and your agent will likely be taking a close look at their report and trying to understand where in the world the appraiser came up with the amount they claim the house is worth.

6) Why did they compare it to those houses?

 

Ideally, the appraiser will compare your house to other homes that are fairly similar to it. But when the number does come in lower than the amount you’ve agreed to pay for it, a lot of times it’s because the appraiser did a poor job choosing “comparable” houses to compare it to. To be fair, sometimes there just aren’t many or enough of them to compare against. But sometimes they’re just plain wrong because they aren’t familiar with the area, or they just have a different perspective on the value of the house than you and your agent do.

7) Can I fight it if it comes in too low?

 

Yes! You and your agent can contest it and ask the lender to have the appraiser consider other, more appropriate comparable properties that will help justify the amount you’re willing to pay. If the appraiser still doesn’t amend the appraisal to a high enough amount, you can ask for another one to be done, but you might have to agree to pay for it unless you can prove that the first one was done incompetently.

8) Why did it appraise for the exact amount I’m paying?

 

More often than not, if the appraiser doesn’t come back with an appraisal amount that’s lower than what you’re willing to pay, their report will most likely say that the house is worth just about what you agreed to pay, or maybe a little bit more. Many buyers wonder how they could have hit the nail on the head with the amount they offered, but the reality is, the appraiser is just trying to justify the amount you’re paying for it, so they’re not concerned about whether or not you got a deal on it. So even if you got the deal of the century and bought a house for tens of thousands less than it should’ve sold for, don’t feel like you didn’t just because the appraiser didn’t say so in the report!