What If The House Doesn’t Appraise – Now What?
Whether you are buying a home or selling one, it is likely that a home appraisal will be requested. If you are the buyer and securing a home mortgage on the property, your lender will almost inevitably require an appraisal to confirm the value of the home and assure that the bank doesn’t lend more than the home is worth.
When an appraisal comes back lower than the purchase contract price, this situation will limit the available funds from the lender and cause a cash shortfall that must be managed for the transaction to proceed. Several possible solutions exist if the buyer still wants to buy and the seller still wants to sell the home, These choices include the following options:
1. The buyer can pay the difference by contributing additional down payment funds to compensate for the decreased contribution from the lender.
2. If the buyer is unable or unwilling to bring more cash to the transaction, the seller can offer to, or the buyer can ask the seller to sell the home for the appraised value. Depending on how long the home has been on the market, the seller may be amenable to this resolution.
3. Probably the most common alternative involves renegotiating the purchase price of the home with both the buyer and seller making concessions that allow the sale to move forward. The seller accepts a somewhat lower price and/or the buyer may also add down payment funds.
4. Occasionally, a reappraisal can be requested, but the outcome is not guaranteed and can, in fact, ultimately support the original findings.
Should the seller decline to sell the home for the appraised value or renegotiate the price, the buyer can decide to terminate the sale. Some sellers can then elect to take their home off the market, wait for a cash buyer or hope the next appraisal reflects the value they’re seeking which may require waiting for market values to increase. Regardless, each appraisal reflects just one opinion of the value and multiple appraisers evaluating the same property using the same comparables can arrive at differing conclusions.
Should you be faced with a low appraisal, consult with your real estate agent, attorney and/or lender for advice on how to address the situation. There is no single right or wrong answer. Keep in mind that market values are fluid and can rise or fall based on changing market conditions. Because real estate is local, check the current housing market in your area to assess the pricing trends before making any firm decisions on whether or not to proceed.
When in doubt, always seek the guidance of an expert whose knowledge should be a valued resource, especially if this is your first home purchase. For additional information regarding the buying, selling or appraisal process, feel free to contact me today. I will be happy to answer any questions you may have, help you to find a new home or determine the value of your existing property.
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