What will Fail A Home Appraisal?

While a home appraisal technically doesn’t have a pass/fail grade, a home can “fail” to meet the appraised value needed for a sale or mortgage approval. This typically happens when the appraised value comes in lower than the contract price or when significant issues are found that affect the property’s livability, safety, or marketability. Below are the main factors that can cause a home to “fail” an appraisal or result in a low appraised value.

Major Factors That Can Hurt or “Fail” a Home Appraisal

• Low Appraised Value Compared to Sale Price
  • If the appraised value is lower than the agreed sale price, the mortgage may not be approved unless the buyer or seller adjusts the terms.
• Poor Location or Neighborhood Issues
  • High crime rates, proximity to noisy areas (like highways), or undesirable nearby features can significantly lower a home’s value.
• Deferred Maintenance and Poor Condition
  • Neglected repairs, peeling paint, broken windows, leaky roofs, or visible signs of disrepair signal poor upkeep and can reduce value.
• Structural and Foundation Problems
  • Cracks in the foundation, sagging floors, or other structural issues are red flags for appraisers and lenders.
• Outdated or Faulty Major Systems
  • Old or malfunctioning HVAC, electrical, or plumbing systems can lower an appraisal, especially if they pose safety or functional concerns.
• Pest Infestation or Damage
  • Evidence of termites, carpenter ants, or other pests—especially if structural damage is present—can severely impact value.
• Over-Personalization or Unusual Renovations
  • Highly personalized décor or unconventional renovations that reduce bedroom/bathroom count or make the home less appealing to typical buyers can hurt the appraisal.
• Excessive Clutter or Signs of Neglect
  • Extreme mess or neglect may prevent a thorough appraisal or give the impression of poor maintenance, resulting in a lower value.
• Outdated or Hazardous Materials
  • Presence of asbestos, lead-based paint, or other outdated materials can be a concern, especially for older homes.
• Fewer Bedrooms or Bathrooms Than Comparable Homes
  • Homes with fewer bedrooms or bathrooms than others in the neighborhood are typically valued lower.
• No or Insufficient Parking
  • Lack of a driveway, garage, or adequate parking can negatively affect value, especially in areas where parking is expected.
• Local Market Conditions
  • A slow market, lack of comparable recent sales, or declining neighborhood values can result in a lower appraisal.

Specific Issues That Can Cause a Home to “Fail” a VA Loan Appraisal

For VA loans, there are strict minimum property requirements. Common reasons for failing a VA appraisal include:

• Insufficient heating
• Inadequate electrical systems
• Roof in disrepair
• Broken windows
• Safety hazards (e.g., exposed wiring, missing handrails).

Summary Table

Key Takeaway

A “failed” appraisal is usually one where the home’s appraised value is too low for the sale or loan to proceed, often due to condition, safety, or market issues. Addressing maintenance, repairs, and obvious defects before the appraisal can help avoid negative surprises.