What Happens When You Get A Bad Real Estate Appraisal

Getting a bad appraisal on your real estate doesn't feel great, but there are actions you can take to remedy the situation.

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

Find out more

As mortgage brokers we are on your team. Our job is to understand your needs, plans and wants in order to understand your mortgage needs. We then look at a number of lenders to find the best products and solutions for you.

During our time in the industry we have learned a number of tips and tricks to help you save money and to pay of your mortgage faster.

If you have any questions or would like a customized mortgage plan let us know!

You might also enjoy

What is Reverse Amortization?

Unfortunately, we have been seeing these reverse amortization situations occurring more and more frequently so let’s examine the scenarios where it happens and discuss what can be done about it.