
What can negatively affect an appraisal?
When it comes to factors that can negatively affect your home’s appraisal value, there are some you can control, and some you can’t. Let’s first look at the ones you have some control over.
Serious issues like a wet basement or a cracked foundation will almost surely knock down the appraisal value. You definitely want to address the big issues in a timely manner to avoid having them negatively affect the value of your home.
Smaller issues can make a difference too. The appraiser will typically note necessary repairs and may knock down the value because of them. These can include structural damage, damage to painted walls, missing handrails, broken screens, and all those little fixes that some homeowners may not even notice after living with them for several years.
The age of your home is a factor that can negatively affect an appraisal. While you can’t control the chronological age of your home, you can control the perceived age by updating fixtures, carpet, knobs, handles, and anything else that makes your home look dated.
The curb appeal of your home is another factor that you have some control over. A messy looking lawn, dead foliage or grass, and outdoor clutter will negatively affect curb appeal. Driveways and walkways in disrepair could also knock down the value.
Now to the factors you can’t control. First, the market. Hot markets and cold markets can both have a negative effect on your home value for different reasons.
In a hot market where houses are selling left and right, the data used by appraisers for comps may not be up to date, and may therefore paint an inaccurate picture of the value of the homes around you. How do you know if you’re in a hot market? Look for homes selling quickly—we’re talking homes only staying on the market a few days. Multiple bids on properties are another sign of a hot market.
On the other hand, a cold market, where home sales are few and far between, may provide very few comps for the appraisal. Those comps that are available may be outdated and therefore won’t accurately reflect the market.
Foreclosures, bank-owned properties, and distressed sales can all negatively affect the comps used in your home appraisal. Foreclosed properties are those whose owners can no longer pay the mortgage. Sellers who just want to unload a foreclosed property may sell it for a low price that drags down the rest of the comps, thereby dragging down the appraised value of your home.
When a foreclosed property doesn’t sell, it becomes a bank-owned, or real estate owned property (REO for short). If an
appraiser uses an REO as a comp and doesn’t adjust that comp based on the rest of the non-REO market, it can give the impression that homes in your neighborhood have a lower value, which is not a realistic assessment.
A distressed property, such as a property that is being vacated due to a death, may be sold at a lower-than-market price because the sellers just want to get rid of it, rather than waiting for the best offer. While it may be a boon to the buyer of the distressed property, it’s doing you no favors when it drags down the average selling price of the comps in your home appraisal.
The appraiser who comes to your property can also be a negative factor, if he or she is inexperienced (they have to start somewhere, but you don’t want it to be at your house), or lacks familiarity with your particular neighborhood or real estate market.
The comps your appraiser uses may be just plain bad. They may appear to be similar, but upon further inspection you might discover that their interiors are in terrible condition, or everything inside the home is outdated while everything in yours is updated. The missed comp is another issue that can crop up, when the sale price of a very similar property hasn’t been recorded, and therefore isn’t accessible to the appraiser.

What should I do if my appraisal is low?
In spite of all your efforts, you may find that the appraisal comes in lower than the contracted sale price. While this is unfortunate to say the least, you do have some options.
First, review the report carefully, looking for errors and making sure the comps are accurate. If you feel the appraisal is incorrect, make your case to the lender and prove that the home, and the local market, are in better condition than the report states.
If an appeal fails, you are allowed to get a second appraisal. This will cost another several hundred dollars and, unless you are completely convinced the first appraisal was wrong, could come back as low as the first one. You may also have to change mortgage lenders.
If you want to stick with the low appraisal, seller and buyer will have to negotiate a solution that works for the lender. The seller can decrease the contracted price, or the buyer can make up the difference by increasing the down payment. Or, the seller and buyer can meet in the middle. If none of these solutions are viable, the transaction will have to be cancelled.