Fredericksburg Home Appraisal Came in Low: Buyer Options

Quick answer: If your Fredericksburg appraisal comes in below the contract price, get a copy of the report first and read it closely. Then you have four main moves: ask your lender for a reconsideration of value, renegotiate the price with the seller, bring extra cash to cover the gap, or cancel if your contract has an appraisal contingency.

A low appraisal feels like bad news, but it's information. The appraisal is a professional opinion of the home's value, and lenders are not allowed to interfere with the appraiser's judgment (CFPB). The CFPB warns that it is very risky to buy a home for more than the appraised value (CFPB). Here's how to work through it.

Step 1: Get the report and check it for errors

For a first-lien mortgage, you have the right to a free copy of the appraisal. Lenders must send it promptly after it's completed and no later than three days before your loan closes (CFPB). If you haven't received it, ask your lender (CFPB).

Read the property details line by line. Freddie Mac lists the things an appraiser weighs, including size, age, room count, condition, lot size, upgrades and comparable homes in the area (Freddie Mac). A missing finished basement, a wrong bedroom count or a comp from a very different part of the market is worth flagging.

Location matters in this market. A sale in a newer Spotsylvania subdivision off Route 3 may not tell you much about an older home near Princess Anne Street in downtown Fredericksburg. A Stafford home near Garrisonville is a different comparison again. My City of Fredericksburg market report shows how the city market has been moving.

Step 2: Ask for a reconsideration of value (ROV)

For conventional loans sold to Fannie Mae, the lender must have a process for a borrower-initiated reconsideration of value. It lets you appeal when you believe the value is unsupported or deficient, or reflects prohibited discriminatory practices (Fannie Mae Selling Guide). The lender must explain its ROV process when it gives you the appraisal (Fannie Mae Selling Guide).

A borrower ROV request must include (Fannie Mae Selling Guide):

• The borrower name, property address, effective date of the appraisal, appraiser name and the date of the request.
• A description of the unsupported, inaccurate or deficient areas in the report.
• Additional data or comparable sales, not to exceed five, with their data sources, such as the MLS listing number (Fannie Mae Selling Guide).
• An explanation of why the new data supports the request.

You get only one borrower-initiated ROV for each appraisal report (Fannie Mae ROV FAQ). If the ROV doesn't change the value, you can't demand a new appraisal, because accepting the appraiser's conclusions is the lender's decision (Fannie Mae ROV FAQ). Freddie Mac adds that a lender can formally request a second appraisal only when the original is deemed inaccurate (Freddie Mac).

FHA and VA loans have their own appraisal rules, so ask your loan officer which process applies to your loan.

Step 3: Renegotiate with the seller

The CFPB says the lower appraised value is strong evidence that the price was above market value, and you can often use it to negotiate a lower price (CFPB). Freddie Mac suggests sharing the report with the seller so they can see the comparable sales (Freddie Mac).

A price cut isn't the only way to meet in the middle. Sellers sometimes split the difference or adjust other terms. Your agent should put any change in writing as a contract amendment.

Step 4: Cover the gap, or walk away

If the seller won't lower the price, your lender will likely cut the amount you can borrow, so you'd need more cash up front to close (Freddie Mac). Only do that if you're comfortable paying above the appraised value and still have reserves after closing.

Your other option is to cancel. Freddie Mac says an appraisal contingency clause allows you to cancel the contract (Freddie Mac). The CFPB suggests talking to an attorney, because cancelling can carry costs depending on your contract terms (CFPB). Watch the deadlines in your contract. A contingency only protects you if you act inside its time frame.

FAQ

Can I challenge a low appraisal on my home purchase?

Yes. For loans sold to Fannie Mae, lenders must offer a borrower-initiated reconsideration of value, and you can submit one request per appraisal with supporting data (Fannie Mae ROV FAQ).

How many comparable sales can I submit with an ROV?

Fannie Mae's rules allow additional comparable properties, not to exceed five, along with their data sources such as MLS listing numbers (Fannie Mae Selling Guide).

When will I get a copy of my appraisal?

For a first-lien mortgage, the lender must send it promptly after completion and no later than three days before closing, at no charge (CFPB).

Can I cancel if the appraisal is low?

If your contract includes an appraisal contingency, it can let you cancel. Freddie Mac describes that clause as allowing you to cancel the contract (Freddie Mac).

Buying or selling in Fredericksburg?

I can help you read the comps and plan your next move. See my Fredericksburg page, or if you're selling too, start on my selling page. Call or text me at (540) 300-4967.

Ron Chronister, REAL Broker