What Happens If the Appraisal Comes In Low on Your Manteca Home?

Short answer: a low appraisal does not automatically kill your sale, and it does not automatically mean you drop your price. It means the buyer's loan is now based on the lower number, and somebody has to cover the gap. Who covers it depends on what the contract says and what each side can actually do.

I'm Carolyn Cardoza, a Realtor and Broker Associate with Realty 1 Team in Manteca, California. I was raised here, and I've been selling homes here since 2007.

This is one of the most stressful calls a seller gets, usually a week or two before closing, when everything felt settled. Here is what is actually happening and what your choices are.

The buyer's lender hires an appraiser to give an opinion of what the home is worth. The lender lends against that number, not against what the buyer agreed to pay.

The appraiser is not working for you, and not for the buyer. You cannot call and lobby them. What you can do is give them facts, which I'll come back to.

Say the contract is $500,000 and the appraisal comes back at $490,000. The buyer's loan is now calculated on $490,000. The $10,000 difference has to come from somewhere:

• The buyer brings it in cash, on top of their down payment
• The seller lowers the price to the appraised value
• The two sides split it
• Somebody walks, and what happens then depends entirely on the contract

Nothing about a low appraisal forces a seller to reduce the price. It changes what the lender will lend. That is all.

If the buyer still has their appraisal contingency, they can usually cancel and get their deposit back. That is real leverage and you should take it seriously.

If the buyer has already removed contingencies, the picture changes completely. Now they are committed, and walking away puts their deposit at risk. A seller in that position has far more room to hold firm.

This is why I pay close attention to the contingency dates on every listing I take, and why I am careful about what gets removed and when.

1. Ask for a reconsideration of value. Lenders have a process for this. It is not an appeal based on feelings. It works when the appraiser made a factual error: wrong square footage, missed a bedroom, used comparable sales that are not really comparable, or marked the condition of your home wrong.

If you can document the error, send it. Photos, invoices, dates on the work you have done. I have seen this move a number, and I have also seen it come back unchanged. It costs a few days.

2. Look hard at whether the number is defensible. Sometimes you read the report and the appraiser did careful work. He used the right homes, made reasonable adjustments and landed in a sensible place. Knowing the difference between a sloppy appraisal and one you simply do not like is the whole job here.

3. Decide what the gap is really worth to you. Against the cost of starting over: another month or two on the market, carrying costs, a stale listing, and for FHA loans a value that follows your property for months. Ten thousand dollars is real money. So is sixty more days.

4. Hold firm. If the buyer has removed contingencies and cannot walk without losing their deposit, holding is a legitimate choice. It is also a relationship, and most of the time the deal that closes is better than the one that is right.

Most of this is won before it starts.

I put together a one page packet for the appraiser: the contract terms, the home's specifics, what the owner has improved with the years they did it, the marketing history, and the closed comparable sales I used to price the home. Appraisers do not always know a roof is four years old or that the floors are new. If nobody tells them, it does not show up.

I hand it over at the door or email it the same day. They are not obligated to use it. They often do.

Can I refuse to lower my price?

Yes. A low appraisal does not require you to do anything. What it does is change the buyer's loan amount, which creates a problem they have to solve, or you decide to help solve.

Can the buyer just get another appraisal?

Not easily. With an FHA loan the appraisal attaches to the property for months, so switching lenders does not produce a fresh number for the next FHA buyer. On a conventional loan a new lender can order a new appraisal, which takes time and money.

How often does this happen in Manteca?

It is not everyday, and it is not rare either. It happens most often when a home sells quickly above recent comparable sales, or when there is a large seller credit built into the price.

Does a big seller credit affect the appraisal?

It can. Appraisers look at concessions on comparable sales and sometimes adjust for them, so a price that carries a large credit is not always read as a clean price.

What should I do the day I hear the number?

Nothing, for a few hours. Get the written report, read what the appraiser actually said and which homes he used, and then decide. The first reaction is almost never the right one.

If you are in the middle of this right now, send me the report. I will read it and tell you plainly whether it is worth challenging or whether the number is solid. Tell me where you are with it, and I'll tell you what I'd do. No pressure here. I'd rather you get this right than get it fast.

I'm Carolyn Cardoza, a Broker Associate and REALTOR® with Realty 1 Team in Manteca. If you would like to talk it through, contact me. You can also read more about selling your home, how I sell a home or what your home is worth.