When Stefan and Jennifer Hull beat out other interested buyers for a four-bedroom, two-bathroom Cape Cod house in Bethesda, they felt sure they’d gotten a bargain at $759,200. They were shocked when their lender’s appraiser valued the home at only $744,000.

Because of the low appraisal, their bank would only give them a $595,200 mortgage, instead of the $607,360 they’d been approved for initially. The Hulls said they didn’t believe the home was worth the lower appraisal amount — it turned out that the appraiser compared their home only to other Cape Cod-style houses, some more than a mile away, while ignoring closer-in comparable sales — so they pulled an extra $9,960 from their savings to make up the gap. The seller agreed to lower the price to $757,000, which was the next highest competing offer for the home.

“We were none too pleased,” said Stefan Hull. “If you look in the area, there was nothing selling under what we had purchased it for, for the same square footage, and we had a nicer house. When we saw the houses he compared it with, we said, ‘You’ve got to be kidding us.’ ”

As the real estate market heats up and prices continue to recover from the 2008 housing crash, more home buyers and sellers are likely to encounter the problem of an appraisal that is lower than the agreed-upon sale price. After all, appraisals must be based on recently settled transactions, and in a rising market those past transactions are likely to be lower in price. Whether you’re a seller or a buyer, it’s important to understand the risks involved around low appraisals — and the options available to you.

“Whenever you have an increasing market, and in certain pockets we have that now, appraisers’ hands may be stuck,” said Traci Levine, a realty agent with Long & Foster in Bethesda. “They go by past history and not future sales.”

Moreover, because of new restrictions on the relationship between lenders and appraisers — aimed at curbing the appraisal abuse that contributed to the housing bubble — buyers and their mortgage representatives have less control over the process. Lenders simply order an appraisal from a list of approved appraisal companies, and a third party directs the individual to perform the appraisal.

“I’m all for not having an appraiser in your back pocket, but to be able to actually pick appraisers that live in the area would be a major differentiator,” Hull said. “They have no idea where these guys are coming from. That hurts the overall housing market.”

One of the contributing problems is the growth in appraisal management companies, which may award appraisals based on low cost rather than the expertise and skill of the appraiser, said Sara Stephens, president of the Appraisal Institute, the largest professional association for real estate appraisers.

“In some cases, cheap and quick is certainly the mantra, and not professional experience and understanding of the market,” Stephens said. “That’s a real issue for a lot of buyers and sellers going forward.”

Preventing a low appraisal

Still, there are a few steps that sellers can take to prevent an inappropriately low appraisal. “There are a lot of agents who just give the appraiser a one-day code to their lockbox,” Levine said. “I take appraisals very seriously. I always meet appraisers at the property and I bring the most relevant comps. They don’t have to take them, but most do.”

Because of the new third-party rules, the appraiser who is assigning a value to your home may not be from the immediate area. It can help to inform that person of the quality of the school district or the amenities in the local neighborhood, as well as improvements to the property as compared with other recent sales in the area.

“A competent real estate agent will generally prepare a list of comps or market sales analysis. They’ll provide information to the appraiser to justify the valuation,” said Ken Vogel, a broker at Vogel Realty Inc. and a real estate lawyer. “Most appraisers will tell you they do welcome the input from agents. The assumption is that the agent is familiar with this house in the neighborhood, whereas the appraiser has a wider geographic area.”

Arlington appraiser Linda Braley suggested preparing a package of information for the appraiser on your home that includes the plat or condo documents, while also including data on comparable houses and any improvements you’ve made that should influence the value of your home.

“Information packaged well is usually very well received,” said Braley, who advises agents not to insist on meeting the appraiser at a home because of the scheduling challenge it can pose.

Appraisals come into play for mortgage refinancings as well. James Cole, a government employee and father of two preschoolers, said he thought everything was going smoothly with the refinancing on his Herndon home, which he and his wife bought out of foreclosure in 2008. But Fannie Mae flagged the appraisal as suspiciously low and ordered it to be reviewed, during which time the rate lock for the Coles’ refinancing expired. The transaction is in limbo as the Coles wait for the results of the review.

“It’s certainly an emotional roller coaster,” Cole said. “My biggest concern is they do their field review and declare significantly less, which would affect our refinance to the point where it may not be worth refinancing. I feel like we’re upstanding citizens and we pay on time and I’m hoping to save some extra money.”

Good appraisers recognize the expertise of real estate agents in knowing whether one house in the neighborhood has a bumped-out dining room or a certain apartment in a condominium complex has a kitchen upgrade, said Ed Downs, an agent at Weichert Realtors in Washington.

“When they’ve got a problem getting something to appraise to value, they’ll look through the comparables and call the listing agent and say, ‘Is there something I don’t know?’ I’ve fielded more calls this year from appraisers and they’re remarkably grateful in those circumstances,” Downs said. “We all want the transaction to go smoothly and 99 percent of the appraisers out there and 99 percent of the agents want to do the right thing and have no agenda.”

Options if an appraisal is low

Despite all the best efforts of the agents involved, sometimes an appraisal will come in low. At that point, the buyer has four options:

●Negotiate a lower sales price.

●Dispute the appraisal with the original lender.

●Get a fresh appraisal with a new lender.

●Make up the difference in the mortgage amount from savings.

Lenders’ hands are tied when it comes to the size of a mortgage, which is typically pegged at 80 percent of the property’s value, said Skip Clasper, a private mortgage banker with Wells Fargo in Washington. Because the bank always represents the buyer, the lender’s first choice would be to negotiate a lower purchase price.

In this situation, buyers must be careful to avoid letting any appraisal contingency expire, or they’d be locked into the transaction, regardless of the size of the mortgage their bank approves. Generally, sellers will grant an extension of that contingency deadline so there’s time to negotiate or challenge the appraisal. If not, the buyer has the right to walk away from the contract under the appraisal contingency. This is especially important given the longer lead times needed for an appraisal as the market gets busier.

“I can usually make it work, but it does take some negotiation and back and forth,” said Judi LaMorte, a Fairfax Center real estate agent with Long & Foster. LaMorte recently represented the seller of a five-bedroom, five-bathroom Colonial in Fairfax with nearly 4,500 square feet, not including the finished walk-out basement. The appraisal came back at $1 million, well below the $1.165 million contract.

“I really fought the appraiser a lot and saw a lot of erroneous things on his appraisal,” she said. “However, the purchaser came up to $1.128 million, and the seller agreed.”

If negotiations fail, lenders may be willing to reevaluate the appraisal. Wells Fargo would be open to a modified appraisal, if compelling information is presented that justifies a higher value, Clasper said.

Home buyers should certainly ask to see the appraisal report, which is their right, Stephens said. Make sure all the data are correct, such as the total square footage and the number of bedrooms, bathrooms and garages. “If all those things check out, I would get in a car and check on the comparable sales, and make sure they are in the same market and have the same characteristics as the home you’re trying to buy or sell,” she said.

Note whether there are professional designations after the appraiser’s name, or whether two names are listed on the report, which can often indicate that the appraisal itself was conducted by a trainee or an appraiser with a bare-bones license, Braley said.

Evers & Co. Real Estate in the District recently sold a renovated Chevy Chase, Md., farmhouse for $1.54 million, after a bidding war raised the price from the $1.495 million listing. The initial appraiser — who drove in from Baltimore — valued the home at $1.45 million, but the sellers refused to renegotiate. When the buyers challenged the appraisal, their bank ordered a fresh appraisal, and a competing lender ordered an appraisal of its own. Both new appraisals came back at the sales price.

“My people felt confident that we could keep the sale where it was because there were two people that wanted the house,” said Laura McCaffrey, the listing agent with Evers & Co. “The buyers were upset, but they still really wanted the house.”

However, government-backed mortgages have special restrictions. Appraisals for loans backed by the Veterans Administration or the Federal Housing Administration stick with a property for six months, meaning you can’t just get a fresh appraisal or switch lenders to start with a clean slate.

If negotiations fail and the low appraisal stands, the buyer may be left with no option but to pay the difference — or to walk away under an appraisal contingency in the sales contract.

“In a minority of cases, you’ve got a buyer with an extraordinary amount of money and they say I’ll just write a check for a larger amount of money,” said Carter Ferrington, an associate broker and agent for Vogel Realty. “More likely, the buyer sends a form that gives the seller the option to lower the price or cancel the sale.”

Ultimately, homeowners benefit from the improved, more impartial appraisal process, said Wells Fargo’s Clasper. “There’s more regulation that’s involved, but across the country it’s served to be a benefit to the industry generally,” he said.

Katherine Reynolds Lewis is a freelance writer.