You’ve spent months searching for your dream house and finally get your offer accepted. Time to celebrate…or is it? What if the house doesn’t appraise for the agreed-upon price? Your dream just turned into a nightmare. How do you proceed? What is the next step?
Take a Deep Breath
It can be heart-breaking for both the buyer and seller if a deal falls apart due to a low appraisal. Low appraisals happen more often than you might think, especially in rising markets. Sometimes distressed sales in the area have affected the appraisal. Other times it could be due to an insufficient amount of comparable home sales which are applicable to the home or area you desire. Traditionally, lenders will generally only lend a certain percentage of the appraised value of the home – say 80% of the appraised value vs. 80% of the contract price. If the appraisal is lower than your offer, you do have other options. One such option is unfortunately, coming up with more cash to balance things out.
Look Over the Appraisal Contingency Clause
Now is the time to reevaluate the situation or attempt to renegotiate if possible. Check over the appraisal contingency clause that is built into your contract to learn more about your options. However, even with a contingency clause, you could end up spending more money or walking away in the end. For the deal to be successful, all parties involved – the seller, the buyer, and the agents – need to work together on a game plan. Perhaps the seller might come down in price or you might offer to pay the closing costs. Think outside the box to insure the deal will still go through.
Get a Second Opinion
It’s possible that the appraiser’s estimate of the home’s value was inaccurate. Ask for a value appeal so that the appraiser must reevaluate or explain why he/she did not utilize the comparable sales provided by the lender. Another option is to work with your lender to request a second appraisal. It’s possible that a subsequent, and yes, potentially higher appraisal might be accepted. In fact, if you are well-qualified, the seller may be willing to pay for the second appraisal to keep the deal on the table. It also might be a good idea for the selling agent to meet the appraiser at the property to provide comparable sales and listings in the area.
Don’t Pay More Than the Appraised Value
Try to remove your emotions from the house buying equation. You may think you have found the only house you’ll ever love, but with that mindset, you’re liable to end up on the short-side of the deal. If you pay more than the appraisal, you’ll spend more than the house is really worth. You wouldn’t pay more than the list price for a car or for a new suit/dress, so don’t make that mistake when buying a house.
Use the Lower Appraisal as An Opportunity If All Other Efforts Fail
Once people are entrenched in a deal, they usually attempt to work things out. Unless there are multiple buyers ready and willing to pay cash, you can use the lower appraisal as an opportunity to renegotiate your deal. Many times the seller is willing to work with a buyer to drop the price and settle for the appraisal amount.
Tom Reese has 20+ years experience in helping his clients sell their homes for a price that sells and makes them a profit. Tom has helped his clients buy and sell property in every neighborhood in Northern Kentucky and Cincinnati.
About Tom Reese
Helping my clients attain their dreams has been the foundation of my success. With my strong attention to customer service, I have earned my clients continued support and referrals. Put my enthusiasm and dedication to work for you!
Call Tom anytime at (859) 393-1293