Especially in a hot sellers’ market where multiple offers are common, a low appraisal can happen but it doesn’t necessarily have to be a deal breaker.
You’ve spent months preparing your home for sale and you see homes like yours selling way above list price then you get your home on the market and quickly find a buyer, the house doesn’t appraise for the agreed-upon price.
Now what do you do?
It can be devastating for both the buyer and seller if the deal falls apart because of the appraisal,” says Danville / San Ramon real estate agent Bernard Gibbons. Yet it isn’t that uncommon. Low appraisals happen more often than you might think, especially in rising markets.
Sometimes there are not enough true comparable sales for the appraiser to reach a high enough valuation. Sometimes the appraiser uses comparable sales that are not really applicable – not unusual with out of area appraisers who don’t appreciate the difference a few streets can make on value.
The problem is that traditional lenders will generally only lend funds up to 80% of appraised value so if the appraisal comes in below the agreed sale price offer, the buyer may need to come up with more cash.
There are usually other options worth pursuing though, especially if the buyer can’t or won’t make up the difference. And remember that the buyer may have the option of just walking away, providing that there is an appraisal contingency clause in the contract.
Compromise Can Save The Day
An appraisal contingency clause built into the purchase contract allows the buyer to consider his position and either cancel the contract or renegotiate the price. Most buyers won’t want to cancel though as that means they have to start looking for a home all over again. Much better if everybody can work together to make the deal stay together. Typically, buyer and seller renegotiate the price so each party gives a little. That way the deal still goes through.
If that doesn’t work, it is worth trying to get the appraisal reviewed. If the appraiser’s estimate of the home’s value was inaccurate, a value appeal may be justified. In which case, the appraiser will review the appeal and respond by reevaluating the property or explaining why they used the comparable sales that they did.
To try to pre-empt a low appraisal it is a good idea to make sure the appraiser knows why the buyer offered the price they did. The best approach is for the listing agent to meet the appraiser at the property to provide comparable sales and listings and most appraisers welcome that.
So although low appraisals do happen, they don’t have to be a deal-breaker and in most cases, buyer and seller manage to work things out with the help of their agents.
Have you had similar experiences? How have you handled them? Please let me know. I would be very interested to hear about how you resolved the situation.