Sunday, May 26, 2019 / by Connie Tracy
You have been searching for a home for months and finally got an offer accepted and then....the house doesn't appraise for the negotiated price.
TAKE A DEEP BREATH
It can be heart wrenching for the buyer and seller if the deal falls apart because of the appraisal. Low appraisals happen more often than you might think, especially in rising markets.
Sometimes there are not enough comparable sales applicable to the home you want, or maybe distressed sales have conflicted with the appraisal.
Generally, lenders will only lend funds up to a certain percentage of the appraised value. If the appraisal is lower than your offer, you may need to come up with more cash.. but there are other options.
1. Look over the appraisal contingency in your contract.
The appraisal contingency clause built into the contract allows you to reevaluate the situation or renegotiate if needed. But sometimes, even with this clause, you may end up spending more or just walking away to look for another home.
Sometimes ALL parties need to join together to make the deal work: sellers, buyers, and agents. Sellers might come down on the price, you might need to pay some, if not all, closing costs (generally, 3% of negotiated price.) Agents might even have to take less commission- but the deal still goes through.
2. Get a second opinion.
Maybe the appraiser's estimate of the home's value was inaccurate. If so, you can request a value appeal.
The appraiser will review the appeal and respond by reviewing the property and reevaluating or explain why they did not use the comparable sales the lender sent.
Another option is to try working with your lender to get a second appraisal. They might be willing to accept the higher appraisal. Of course, as the seller, you would have to be willing to pay for the second appraisal to keep the deal going.
To help guard against a lower appraisal, make sure you let the appraiser know the reason you made the offer you did.
3. Try not to pay more that appraised value
In this crazy multiple offer market, it is important to not go crazy with your offers as the buyer. AND for the sellers... it is not always the best idea to choose the most inflated offer. You just never know if your home is going to appraise for the offer accepted.
As the buyer, you might think you have found the only house you will ever love, but with that mindset, you are opening yourself for heartbreak. Try to remove your emotions from the equation.
IF you do pay more than the appraisal, you'll spend more than the house is worth. If you wouldn't pay more than the list price for a car or even for shoes, you generally shouldn't do this for a house.
Although low appraisals happen, they don't always mean doom and gloom. Hiring an expert, who has dealt with these situations, can help you weather the storms of low appraisals and get you into your home of your dreams.