You have found your perfect home and have an accepted offer to purchase the property.
Everything is going great until the appraisal comes back. Here are the most common appraisal issues and how you can fix them.
Common Appraisal Issues
The Appraisal Value Comes in Under the Purchase Price
Here is what you can do about it.
A) Challenge the appraisal value
Request comparable sales from your buying agent and the listing agent. Appraisers will consider sold listings that are comparable to your purchase. We can request a “value appeal” from the appraiser. With strong comparable sales we may be able to get the appraiser to increase the appraised value.
B) Get a second appraisal
Many lenders will consider a second appraisal from another appraisal company and average the value of the two appraisals. This runs the risk of paying for two appraisals so I highly suggest trying a value appeal first.
C) Increase your down payment
IE Your are purchasing a $500,000 home with 20% down($100,000). The appraisal comes in at $480,000. If you still want to purchase the property the lender would require you put $116,000 down. (20% of the appraised value + the difference between appraised value and purchase price)
The Appraisal will not Support the Duration (Amortization) of the Mortgage
An appraisal has a few key details on it. One is the “economic life” or how long the property will be livable without major repairs. Lenders require the economic life to be 5 years longer than the duration (amortization) of the mortgage.
If the appraisals economic life comes in low, here are XYZ solutions to the problem. The first step will be finding out the deficiencies the appraiser is concerned about.
A) Request the sellers fix the issues.
In a buyers market the sellers may be eager to help solve the issue. In a sellers market they may have other buyers lined up waiting to take your place as the purchaser. This solution can work for smaller issues but has a couple drawbacks.
The lender may want confirmation the work is done and you may not agree with the quality of the repairs made by the seller.
B) Request the appraiser reconsider the economic life
This generally only works on borderline cases and has a relatively low success rate. It is always worth asking but you should be prepared for a no.
C) Get contractor quotes to repair the issues (often roof, hot water tank, or furnace).
We can request the appraiser redo an “as is” and “as complete” appraisal. This almost always solves the economic life issue. We then need to request the lender approve a purchase plus improvements mortgage. Learn more about purchase plus mortgages in my blog.
D) Take a shorter duration (amortization) to the mortgage
If the deficiencies are reasonable the lender may allow you to take a shorter amortization. The amortization must be 5 years shorter than the life (remaining economic life) of the property.
If you ever have any challenges or need help you can reach me at Keaton@kbmortgages.ca
