What If The Home Appraisal Comes In Low?

You’re ready to take the leap! Maybe you’ve been planning on buying a house of your own or starting to invest in a condo. You have gotten all your ducks in a row – down payment (got it), mortgage preapproval (check), reliable real estate agent (check). Now you’ve put an offer on your dream home – and it’s been accepted!

With an offer to purchase in hand, what could go wrong? Well, sorry to burst your bubble, but you still have one hurdle ahead of you – the home appraisal. If that comes in low, the deal could be in trouble.

How Does A Home Appraisal Work?

Unless you are an all-cash buyer, you’ll be counting on mortgage financing to help you pay for that dream home. Part of the financing process is a home appraisal, a professional home inspection ordered by your lender. 

As well as examining the property’s physical condition, the appraiser will look at comparable sales prices for similar homes. The purpose of an appraisal is to assess the house’s current worth, which will become the figure that your new mortgage is based on.

But what about that nice high preapproval number? Well, being preapproved for a certain amount of mortgage does not mean you’ll automatically receive that sum. Instead, the financing will be based on the actual appraised value of the home you fall in love with. This is done simply to protect the bank’s interest in the property.

That’s why if the appraised value comes out lower than the price you and the seller have agreed on, you’ve got a potential problem – you may not receive the full amount of financing you need.

Common Reasons For A Low Home Appraisal

1. Under-informed appraiser. Ideally, the appraiser should be familiar with the local real estate market in your chosen neighbourhood. In addition, they should consider desirable features that add property value, such as renovations or outdoor space.

2. Rising (seller’s) market. In a volatile real estate market (like we are experiencing right now in Ottawa), home purchase prices rise so quickly that many appraisers can’t keep up. The market can constantly be shifting – making that appraisal outdated in a matter of weeks!

3. Problematic comps. Because comparable (homes similar in size and location) figures play such a major role in calculating the appraisal figure, it’s important that they are accurate. 

Comps should be up to date, based on homes recently sold or pending sale\ (not current listing prices) and properties which are truly similar in terms of location, number of rooms, square footage, amenities, and condition.

4. Unique property. It can be extremely challenging to find a comparable home when appraising a truly unique property.

Why Do You Need A Paul Rushforth Agent?

Realistic assessment of budget and prices. Our agents will help you decide how much house you can afford before we take you out to your very first viewing. We’ll also guide you as to whether a particular house is likely to sell above asking.

Accurate up-to-date comps. Because prices are going up so drastically, it’s hard for appraisers to get accurate pricing. However, the Paul Rushforth team continuously studies the Ottawa market, keeping our fingers on the pulse. As a result, we are in tune with the most current pricing and recent sales.

Careful phrasing of offer to purchase. Our job is to take care of you, as a home buyer. With that essential goal in mind, we will make sure that your offer to purchase is worded in a way that will protect you, such as including “conditional on appraisal” if that is relevant.

Expert advice. We offer effective solutions for an appraisal that comes in low. For example, you can challenge the appraisal and bring in a second appraiser (you’ll have to pick up the tab, which will be about $300-$500).

Alternatively, you could add cash to make up the difference, by either obtaining a loan from another source or diverting some cash from your down payment. We’ll help you decide.