Vacation Home Under-Appraised By Bank

By Amanda from Boston, Massachusetts

Ask Kate: Why is my vacation home under-appraised by the bank?

Dear Kate, We have been looking for a nice vacation home in New Hampshire. After a lot of searching we found a house that would be perfect for us: four bedrooms, two baths in an established mountain community with a mix of week-enders and full time residents.

The house needs some work, but really any house we bought we would plan to renovate. We do the work ourselves and enjoy it.

The systems in this chalet are good- sound roof, sound structure, the septic system okay. It may need replacing in a few years. The house needs a face lift inside and a new kitchen. The price is very reasonable for this area too.

We thought we found the dream place and put in an offer very close to the asking price. And we put down $25,000, to finance $185,000. The offer was contingent on the mortgage approval.

The bank appraised the house for less than what we agreed to pay. They felt the septic system would need to be replaced.

But if we use it only on week-ends it will hold up indefinitely. Now we are in a quandary. We feel strongly that the bank appraiser called this one wrong.

Kate Answers: Vacation Home Under-Appraised By Bank

Ask Kate at

Dear Amanda,

Maybe opportunity is knocking. So try to see this as a good opportunity. You may come through this with better terms.

Due to the current foreclosure crisis, bank policies regarding appraisals have become stricter. The septic is probably adequate for a vacation home. But the bank anticipates the septic becoming their problem if you went into foreclosure and they were forced to resell the property. This is probably the attitude you are feeling behind the bank's decision. So, it all comes down to the golden rule of mortgage lending, he who has the gold makes the rules.

Appraisals are only the result of one person's opinion on a given day. Yes, the bank lends a lot of credence to appraisals but in reality, they are just an opinion. So you may be able to work around this roadblock.

Here are some six options to consider:

  1. Speak with a second appraiser who may have a different opinion about the septic's longevity.
  2. If you have additional cash available, ask your bank to waive its septic requirement in return for a lower loan-to-value ratio.
  3. Not all lenders are created equal, so consider switching to a lender who is not as property sensitive. Ask friends or relatives for a referral.
  4. Ask your real estate agent about renegotiating with your seller to replace or repair the septic before closing the real estate transaction.
  5. Ask your real estate agent about renegotiating a lower purchase price with your seller if your lender would allow you to replace the septic after closing under an escrow hold-back. (if practiced in your locale)
  6. Ask your lender about reversing their decision if the seller provides a warranty from a septic company.
  7. Without knowing more details, I hope this is helpful to you in buying your dream house.

Best wishes and good luck,

Ask Kate

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