When an appraisal is high, it can indicate a fairly strong housing market and when it is low it can indicate a faltering housing market. Either way, the lower value of the two is used when processing a new loan application. Once again, lower or higher values are the exception in most markets and not the rule. When you consider refinancing your mortgage, a lot will depend on the appraisal.
If the value of your home is so low that it's submerged, you can't refinance. If the appraised value places the equity of your home at less than 20%, you'll need to pay private mortgage insurance (PMI) or you'll have to contribute some money to refinance with cash. In addition, you may not get the lowest interest rate available, as lenders consider borrowers with less capital to be riskier. When the valuation is low, the buyer's mortgage lender will lend no more than the assessed value.
Cash buyers can decide to skip an appraisal entirely, ask them to do it only on their own knowledge (without a contingency), or even file an appraisal contingency, just like a cashless buyer would. While it may seem like the fee is worth it if it allows you to get the refinancing terms you want, it may seem like a waste of money if a low valuation means you can't refinance. As the person who paid the appraisal, the buyer may ask their lender to challenge the appraisal if they believe that the appraiser used incorrect information or incorrect comments, or if they were not familiar enough with the area. The lender bases the LTV ratio on the assessed value of the home, not on the purchase price listed in the contract.
If you're sure that the valuation was lower than it should be, but your buyer isn't willing to challenge it (or if the challenge fails), you may have to let the offer slide. Before deciding to pay more than the assessed value, it's important to carefully consider your budget and goals. Some common problems that can reduce an appraised value are miscalculations of square footage or the lack of inclusion of recent buildings or renovations. One of the most important things an appraiser evaluates is the condition of your home, so make sure it looks clean, tidy, and well-maintained.
An appraisal may also be low if an appraiser omits information about major home improvements or cannot find suitable comparable products in the area. If you're buying a home with a mortgage and the valuation is lower than the price offer, you'll need to invest more money. If you've followed previous pre-evaluation advice and your rating is still low, here are some steps you can take to get back on track. It is a risk assessment calculation of the amount of money they are going to finance in the mortgage (not the sales price), divided by the appraised value.
It's not an ideal situation for you or the buyer, but if the buyer signed a contingent valuation, they can cancel the contract and void the deal.
