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
Value compared with sale price: Ask the lender how any difference affects the actual financing request.Location: Relevant nearby uses, noise and access can affect comparisons; avoid broad neighborhood stereotypes.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Outdated or Faulty Major Systems Old or malfunctioning HVAC, electrical, or plumbing systems can lower an appraisal, especially if they pose safety or functional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.Clutter: Blocked access can prevent needed observations and require follow-up.Outdated or Hazardous Materials Presence of asbestos, lead-based paint, or other outdated materials can be a concern, especially for older homes.Fewer Bedrooms or Bathrooms Than Comparable Homes Homes with fewer bedrooms or bathrooms than others in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: Changing market evidence affects analysis. A shortage of close comparisons can require wider research rather than an automatic low value.Summary Table
| Issue | Useful information |
|---|
| Value versus price | Property facts, effective date and lender instructions |
| Repair concerns | Known issues and repair records |
| Unusual features | Plans and comparisons |
| Access | Areas available for observation |
| Market evidence | Relevant transactions and their differences |
Key Takeaway
A lower-than-expected value and a condition concern are different issues. Review the report’s facts and ask the lender or relevant adviser about the next steps for the actual transaction.