What to do when a Santa Fe appraisal comes in low

A low appraisal means the lender’s appraiser valued the home below the price the buyer and seller agreed on. The lender will only finance against the appraised value, so someone has to cover the difference, the price has to move, or the deal ends. In Santa Fe it happens more than in most markets, and it is usually fixable.

Why Santa Fe appraisals come in short

Appraisers value a home by comparing it to recent sales of similar homes nearby. Santa Fe makes that hard.

• No two houses match. A 1920s adobe on Acequia Madre, a 1970s passive-solar on the east foothills, and a new contemporary in Las Campanas can all be 2,400 square feet and have nothing else in common. Square footage tells an appraiser less here than almost anywhere.
• Few sales to compare. Neighborhoods like the Historic Eastside or Tesuque may see only a handful of sales a year. The appraiser may have to reach across town or back a year for comparables.
• Hidden value. Water rights, a working acequia, a lot inside the historic district, a view corridor that cannot be built out: these move prices in Santa Fe and do not show up on a standard appraisal form.
• Out-of-area appraisers. Lenders assign appraisers through management companies, and the person who shows up may work mostly in Albuquerque or Rio Rancho. A Santa Fe price per square foot looks wrong to someone used to Albuquerque’s.

What sellers can do before listing

• Price from real comparables. We pull the sales an appraiser will pull, not the ones that flatter the house. If the price we agree on is above what the comps support, we plan for the appraisal from the start.
• Document the house. A one-page summary of improvements with dates and costs, the roof and stucco history, the solar system, the well and septic, the water rights. Appraisers can only credit what they know about.
• Be there for the appraisal. Your broker should meet the appraiser, hand over the improvements list and the comps, and point out what is not obvious from the street. This is normal and appraisers expect it.

What buyers can do

• Ask your lender for a local appraiser. You are paying the fee. Ask for someone who works in Santa Fe County regularly. Most lenders will accommodate the request.
• Keep an appraisal contingency if the market allows it. It lets you renegotiate or walk away without losing your earnest money.
• Decide your ceiling in advance. If you are willing to pay above appraised value for the right house, know the number before the report arrives, not after.

Four ways to close the gap

When the appraisal comes in short, the contract usually resolves one of four ways:

1. The seller lowers the price to the appraised value. Common when the comps are solid and the market is soft.
2. The buyer brings cash to cover the difference. Common when the buyer has the funds and the house is rare.
3. They split it. The most frequent outcome in Santa Fe, and the one a good broker on each side steers toward.
4. A reconsideration of value. The buyer’s broker submits better comparables and documented features and asks the appraiser to revisit. It works often enough to be worth the week it takes, especially when the first appraiser missed sales inside the neighborhood.

If none of those works, the contract ends and the house goes back on the market. The appraisal does not follow the house, but the days on market do, so sellers have a reason to find a solution.

Before it gets that far

Most low appraisals we see could have been predicted at the pricing stage. A listing priced to the comps, with the improvements documented, rarely has a problem. If you are thinking about selling, start there. If you are buying and want to know how a particular neighborhood tends to appraise, ask us. We have been through this on both sides of the table.