A low appraisal can complicate the home-buying process because a lender will only finance a percentage of the appraised value.
What should you do? Walk away from the sale? Fork over the money to cover the difference? Try to renegotiate with the seller?
There are ways to deal with the issue but first you must know why it happened. Here are some common reasons.
1. Comparable Properties
The appraiser had to go outside the neighborhood to get comparable properties(the comparison approach is the most used in residential appraising). Sometimes there isn’t enough data on sales of similar homes in the area, forcing the appraiser to use comps from a nearby-and possibly less desirable community. Ideal comps should be similar in size, location and view.
2. A gorgeous basement
The house has a large beautiful finished basement with a bedroom and a bathroom. You’ve doubled your square footage. Unfortunately, appraisers are required to use much lower value per square foot for space below ground.
A pool, high end landscaping and a great outdoor kitchen are attractive features for a buyer but frequently don’t translate to higher valuations on the appraisal. Here’s why: When an appraiser compares two otherwise identical homes, one with the amenities and one without, the difference in selling price is usually not nearly as much as the cost of adding these features—especially when the amenities are of better quality than is standard for the area.
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