What Hurts a Home Appraisal?

Whether you’re buying, selling, or refinancing a home, the appraisal can be one of the most consequential steps of the entire process. A low valuation could throw a major wrench in your plans, regardless of your role in the transaction.

In this article, we'll discuss what hurts a home appraisal: external factors that are out of anyone's control and areas where the homeowner may improve the appraisal’s outcome.

Why Do I Need a Home Appraisal?

An appraisal is a professional estimation of a property's current market value. It helps lenders determine how much money they are willing to loan on the property and gives them peace of mind that a property's sales price is a fair representation of its worth.

Lenders require a home appraisal in nearly all situations. While there are a few scenarios where a home appraisal may not be necessary – we'll cover those exceptions below – you can anticipate needing an appraisal for just about any transaction involving a mortgage.

While local sales trends may majorly impact appraisal estimates, homeowners can effectively improve their property’s value in many ways. In some cases, taking action helps ensure that an appraisal comes in as planned – or even higher.

To give you an idea of what to focus on, here are nine things that can hurt a home appraisal: four things that no one can control and five that the homeowner may hold some sway over.

4 Surprising Factors That Affect a Home Appraisal

These first four factors that can affect a home appraisal are things the homeowner cannot realistically control because of external variables and property characteristics that are generally impractical to change.

1. Local Market Conditions

Local market conditions refer to the trends that are happening within the area's real estate market. This is most commonly thought of in terms of how quickly prices are appreciating and whether it's a buyer's or seller's market. However, it can also include things like which neighborhoods are currently popular or whether there are changes in housing type preferences, such as condos becoming more or less in demand.

2. The Home’s Location

Being near nuisance properties – whether through sight, sound, or smell – can bring down a home's value. Other locational factors that could hurt a home appraisal include the local crime rate, perception of zoned schools, and being in a FEMA Special Flood Hazard Area.

3. Size and Layout of the Home

Although it is possible to change the size and layout of a home in many cases, the large amount of work is generally cost-prohibitive for appraisal purposes. If you have a home that is out of size for its area, has a unique layout, or has unfavorable features such as small and dark rooms, you could see a ding in value.

4. Appraiser’s Experience Level

Federal regulations almost always prevent lenders from directly choosing the appraiser they work with. The selection is typically done through a third-party appraisal management company. Sometimes, you may get an appraiser who has worked in the local community for decades. Other times, it may be someone new to the profession or working outside their typical coverage area.

5 Appraisal Factors Within the Homeowners’ Control

It doesn’t matter if you’re selling or refinancing – what hurts a home appraisal for refinance is the same as a buyer’s lender ordering the valuation – there are some potential issues that the homeowner has some control over.

In fact, many of these can be relatively simple fixes that provide the opportunity to meaningfully boost a home's appraised value.

1. Poor Curb Appeal

The appraiser will examine the property’s curb appeal the second they pull up. Some of the most common issues include neglected landscaping, a cracked driveway, and faded or peeling paint.

But it could also be a lack of appealing features relative to other comparable homes. For example, you might be knocked if all your neighbors have upgraded garage doors or a small front porch where you only have steps.

2. Neglected or Deferred Maintenance

Has it been a while since you've taken care of regular and seasonal maintenance, such as caulking around your sinks and showers or replacing your pool filters? Appraisers consider the impact of deferred maintenance and will likely account for the future upkeep costs as a reduction in value.

Plus, aspects of the home that appear to be poorly maintained could warrant a detailed inspection, which might uncover more severe issues.

3. Pest Infestations or Past Damage

If you're aware of pest infestations – things such as termites, rodents, or flying insects – you should get them professionally treated before your appraisal. If you suspect issues from a past infestation, consult a professional and consider the practicality of remedying the damage.

4. Outdated Features and Appliances

If you have outdated features or appliances, you can expect a lower appraisal value to account for the future cost of renovating or replacing them.

This could include things like your kitchen appliances, a bathroom's style, the HVAC system, or your electrical and plumbing. It may even include things that aren't necessarily old but are still out of style, such as the wrong-colored appliances or builders’ grade faucets and hardware.

5. Highly Personalized Renovations

It’s not uncommon for homeowners to decide to renovate their properties. In fact, home improvement projects are the number one reason for cash-out refinances. But sometimes, highly personalized renovations can hurt a home appraisal’s outcome.

If you've customized your home in a way the average buyer may not appreciate, don’t be surprised when the appraiser lowers their estimate.

What if the Appraisal Comes in Low?

Since the appraisal is such a crucial part of the lending process, problems can stir up major issues. If the appraiser gives a higher price estimate than you anticipated, you're in luck – your transaction should be able to move forward without a hitch.

However, if the appraisal comes in low, the borrower may encounter trouble securing their loan.

For Example: If you’re selling your home for $300,000 and the buyer’s lender is willing to loan up to 95% of the property’s value – or $285,000 – the buyer will be prepared to make a $15,000 down payment. But if the appraisal comes in at $285,000, a company offering a 95% LTV mortgage would only be willing to lend $270,750.

Because of the low valuation, you would either need to lower your agreed-upon sales price to be more in sync with the appraiser's estimate, or the buyer would need to come up with a nearly doubled down payment. This situation is unfavorable for both parties and can quickly put the brakes on your entire deal.

What to Do if You Receive a Low Appraisal

If you're selling your home and the appraisal comes in low, there is little you can do besides agree to reduce your sales price. The issue is between the buyer and their lender, and you're essentially stuck in limbo at this point.

However, if you’re buying a home or receive a low appraisal on your refinance, you may have some options.

Check the Appraisal Report for Errors

Appraisers are human and sometimes make mistakes. Double-check that all major aspects of your appraisal report are correct, such as the square footage and number of bedrooms and bathrooms, and that all value-adding features, such as a pool or a finished basement, are included.

If there are errors, your lender can help you submit an appraisal rebuttal.

Ask the Lender for a Second Appraisal

If you feel that the appraiser was incorrect in their valuation, you can ask your lender to order a second appraisal. Not all lenders allow this, though, and if they do, you will be responsible for paying both appraisal fees. However, the cost may be worth it compared to coming up with a larger down payment or being unable to go through with your refinance.

Apply With Another Mortgage Company

Buyers whose lender won’t allow them to get a second appraisal may have few options. Unless you've already been pre-approved with a second mortgage company, you may be unable to entirely restart the lending process within the timeframe of your purchase agreement. That is unless you’re able to negotiate an extension with the seller.

On the other hand, homeowners who are refinancing have the option to simply start over with another mortgage company. You’ll need to pay application and appraisal fees again, but the entire process is unlikely to delay your refinance much more than a few weeks.

Can I Get an Appraisal Waiver?

It's possible for some buyers and refinancing homeowners to get an appraisal waiver from their lender. This means you would not need an appraisal to complete your loan. However, most properties won't qualify, and not all lenders and types of loans offer these waivers.

Most importantly, only conventional loans are eligible for appraisal waivers. Mortgages insured or backed by government agencies – such as the FHA, VA, and USDA – do not offer appraisal waivers.

The other bad news is that the appraisal waiver process is relatively random, assigned by the lender's automated loan underwriting system. Lenders cannot pick and choose which borrowers receive waivers, but some factors can improve your chances:

• Having an exceptional credit score

• Bringing a sizeable down payment (or equity)

• Showing proof of considerable other funds

• Already having a recent appraisal of the property

Refinance With a Streamline Loan Program

If you're refinancing your home and don't qualify for an appraisal waiver, you may have another option. Homeowners with existing mortgages backed by the FHA, VA, or USDA may be eligible to refinance through their agency's streamline refinance program.

Streamline refinances are unique refinance loans offered to government-backed loan holders looking to lower their interest rate and reduce their monthly payments. A streamline refinance typically requires no appraisal, no detailed credit check, and no re-verification of your earnings.

But similar to appraisal waivers only apply to conventional loans, only government-backed mortgages are eligible for streamline refinances. There is currently no type of streamline refinance for conventional borrowers.

Are You Ready for Your Home Appraisal?

Getting an appraisal can be stressful, but there's little to worry about in most cases. If you're proactive in maintaining your home and unaware of any substantial issues, your appraisal will likely come in fine, and if any known factors within your control could raise your home’s appraised value, address them before the appraisal to help ensure a favorable estimate. However, if there are problems, know that you may be able to submit an appraisal rebuttal or order a second valuation.

At the very worst, if you're buying or refinancing and the appraisal doesn't come in, you can look into finding and applying with a new lender altogether.