This is a common problem, especially after home prices fell after 2006. If you purchased your home in 2004, 2005 or the first part of 2006, the odds are good that your residence is worth less today than it was when you purchased it.
A low appraisal can lead to serious problems when you’re ready to sell. If you owe $300,000 on your mortgage loan, you’ll want to sell your home for at least that much. But if your appraisal comes in under $300,000, you’ll struggle to convince buyers to pay that amount. And even if you can persuade them, the odds are that your buyers’ lenders won’t approve a mortgage loan for more than your home’s appraised value.
It is possible to request a second appraisal. But unless the first appraisal contained errors — maybe the appraiser miscounted your home’s total square feet or thought that your home had three bedrooms instead of four — the result of the second appraisal will probably be similar. It’s important for sellers to realize that appraisers report home values, they don’t set them.
If your appraisal does come in low, you do have options. You can sell your home for the appraised value and then pay your lender the amount you still owe. If you sell your home for $280,000 but you owe $300,000 on your mortgage loan, you’d have to pay your lender $20,000. Failing that, you might be able to convince your buyers to cover the difference. Say your buyers’ lender will only loan them $290,000 based on your home’s appraisal. If your buyers bring $10,000 to the table, you’ll be able to pay off what you owe. Of course, this will only work if your buyers want your home badly enough to come up with the extra money.
Your only other option? Sell your home later and hope its value steadily increases as you continue to pay down your mortgage loan.
If you do request a second appraisal, you can take some steps to possibly increase your home’s appraised value before the second appraiser arrives. First, you can educate your new appraiser on any improvements you’ve made to your home. If you’ve gut-renovated your kitchen, make sure to provide your appraisers with any documents that show how much you spent on the improvements. If you added a new master bathroom, do the same.
You can also make small repairs, such as filling in cracks in your driveway, replacing worn-out carpets and repairing that broken dishwasher. Appraisers will take a home’s condition into account when determining its appraised value.
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