3 things to know about the appraisal process in Minnesota

Chad Banken
Chad Banken
Published on April 25, 2022

Whether you are buying or selling a home, the appraisal is the most critical aspect of the process.

No matter how carefully the seller’s agent researched the current market, no matter how much the buyer is willing to spend on the home, the fact remains that the lender relies solely on the appraiser’s estimate of value when deciding how much to lend to the borrower for the purchase.

A low appraisal, therefore, changes the whole game.

Let’s take a look at the process and three things you should know about it.

1. The Appraiser

The appraiser is a specialist hired by the buyer’s lender to determine a property’s current market value and they use a number of methods to figure it out.

First, they measure the property and then they will compare the measurements to the legal descriptions of the property held by the city or county.

They will also evaluate the neighborhood in which the home is located. They’ll use city or county sources, along with MLS statistics, to obtain information on recent sales in the area. They may draw land diagrams and they always write a written report for the lender and the buyer.

2. Why the Appraisal may be low

The market value determined by an experienced real estate agent typically matches, or comes close to, the appraiser’s estimation of value.

Low appraisals generally occur when the seller uses an inexperienced agent and they are also quite common when the home has received multiple offers. Bidding wars frequently cause a home to go into contract for more than it’s worth.

Then, there are homeowners who don’t take the agent’s advice and overprice the home. They feel vindicated if they receive a full price offer but that feeling is dashed when the appraiser agrees with the agent that the home isn’t worth as much as the buyer is willing to pay for it.

Other reasons for a discrepancy in the home’s evaluation include:

  • A shift in the local economy that impacts the housing market. If a whole bunch of foreclosures hit the market quickly, for instance, surrounding home values decline.
  • The agent and/or the homeowner may undervalue certain improvements made to the home. In this case, the appraisal may come in higher than expected.
  • The appraiser may feel the home’s location, or problems, drag down its value more than the agent and homeowner did.

3. How to Deal with a low Appraisal

Let’s face it, a low appraisal is the pits. Buyers and sellers have only a few choices when faced with one.

“For the sale to go through, the buyer will need to either negotiate with the seller to take less for the home or make up the difference – also known as ‘the appraisal gap,’” according to Andrew Dehan at rocketmortgage.com. 

Taking less for the home is not an attractive option for most sellers. The truth is, you’ll be faced with this same dilemma with the next buyer, the next buyer and the one after that.

By the same token, buyers typically don’t want to fill that appraisal gap by paying more for a home than it’s worth.

Another solution to a low appraisal is for the buyer and seller can meet half way. The seller can lower the price and the buyer can bring in more cash.

Finally, the buyer can challenge the appraisal. This isn’t as easy as it may sound. The seller will need to get involved by verifying the accuracy of the report.

Appraisers are human and they sometimes get things wrong. Some of these include square footage, the number of bedrooms or bathrooms and the age of the home and these errors may be on the subject property or the comparables used by the appraiser.

Sometimes sellers have knowledge about the conditions of a particular sale in the neighborhood that the appraiser isn’t privy to. Perhaps your neighbor got a job offer in another state and to get there quickly, took a low offer.

At any rate, if you find inaccuracies you can challenge an appraisal and request a new one from the lender. The lender is under no obligation to agree with your request, but it’s certainly a question worth asking.

Questions about selling or buying a home? Feel free to contact us.

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