Appraisal Came In Low on Your Flip? Here's What to Do Next

A low appraisal usually means a smaller loan, not a dead deal. Since the loan is sized as a percentage of value, a lower value cuts the maximum loan, and someone has to cover the gap. You have four main ways to respond.

Why it happens

Appraisals miss expectations for ordinary reasons. There may be few recent sales nearby. The appraiser may give less credit for your planned renovation than you expected. The market may have cooled since you signed. Sometimes the appraiser simply picked different comps than you would have.

What it does to your loan

Example: You're buying at $300,000 and expected an as-is value of $320,000. The lender's limit is an illustrative 80% of value or cost, whichever is lower. You were expecting a $240,000 loan. The appraisal comes in at $280,000. Now 80% of value is $224,000. That's $16,000 more cash you'd need at closing, unless something changes.

The same thing happens with after-repair value (ARV). If the ARV comes in light, any limit tied to it drops too.

Your four options

1. Challenge the value

If you think the report missed something, you can usually ask for a reconsideration of value. Send specific evidence:

• Closed sales the appraiser didn't use that are closer or more similar
• Errors in square footage, bed or bath count, or condition
• Recent renovated sales that match your scope

Keep it factual and short. A reconsideration can raise the value, but it often doesn't. Ask your lender how its review process works.

2. Renegotiate the price

If it's a purchase, the appraisal is leverage. Share it with the seller and ask for a lower price or a credit. Sellers who want to close often meet you partway.

3. Bring more cash

If the deal still works at a lower loan amount, you can cover the gap yourself. Check that your reserves and rehab float still hold up afterward.

4. Rework the scope

If the ARV came in low, your planned finishes may be too high for the area. Trimming the scope can lower your cost, which can bring a cost-based limit back in line and protect your profit.

What this means for you

Decide before you order the appraisal how much of a gap you can absorb and what you'll do if it comes in short. Investors who plan for a lower number respond in a day. Those who don't can lose the deal.

Facing an appraisal gap? Send RSC Private Lending your updated numbers for a term sheet in 24 hours. Subject to underwriting.