What fails an appraisal?

Some common problems that can lower an appraised value include miscalculation of square footage or failure to include out buildings or recent renovations.

rocketmortgage.com - What To Do If You Receive A Low Appraisal - Rocket Mortgage

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There are a few possible scenarios in this situation.

Parties Can Request A Second Look

Your real estate agent will take the lead in pushing back on a low appraisal. If they find a discrepancy in the report , they can ask for a correction/revision. Some common problems that can lower an appraised value include miscalculation of square footage or failure to include out buildings or recent renovations. However, in the absence of well-substantiated claims of oversight or mistake, most lenders, including Rocket Mortgage, would be unlikely to agree to a second request for an appraisal.

Buyer Makes Up The Difference In Cash

In a seller’s market, where sellers hold more negotiating power, they’ll have little incentive to lower their price in response to a low appraisal. In all likelihood, buyers will have to make up the difference between the loan amount the lender is willing to offer and the purchase price.

Buyer And Seller Renegotiate The Purchase Price

In a buyer’s market, where the buyer holds more negotiating power, a motivated seller might be incentivized to lower the sale price to the appraised value.

Buyer Exercises Their Appraisal Contingency And Walks Away From The Sale

If the purchase agreement contains an appraisal contingency, the buyer is protected in the case of a low appraisal. If the buyer can’t get the seller to adjust the price or come up with the difference in cash, they can walk away from the sale with their earnest money deposit returned to them. If you’re in the position of having to walk away, take solace in the fact that you may have dodged a bullet. If the house isn’t worth what you’re willing to pay, you could end up underwater on your mortgage. That would mean you’d be unable to sell without absorbing the loss of the difference between what the home sells for and what the balance owed on the mortgage loan. Similarly, you’d have a hard time refinancing your home because of your too-high LTV ratio.

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