What Happens When the Appraisal Comes in Too Low?
You’ve made an offer on a house or a piece of property, you have been approved for financing, the inspection passed with flying colors and everything is looking good until the appraisal comes in lower than the offer price. What can you do at this point?
There are a number of options and ways to deal with the low appraisal.
Talk to your real estate agent.
Of course, your real estate agentwill probably be the one that will tell you the appraisal has come in low. Your real estate agent should have a variety of options that you can turn to if this is the case. Each individual situation is unique so you may have different options based on the seller, the motivation for selling, the lender and the general market price of the area.
Challenge the appraisal.
As a buyer, you have the right to obtain a copy of the appraisal report. You want to read it carefully and consider discussing it with your attorney and your real estate agent. You could talk to the appraiser and the lender if you believe that there are errors in the appraisal report. You can ask the appraiser to return to the property and reevaluate if there’s some errors or discrepancy in the appraisal.
You can talk to the seller about lowering the price.
If the seller feels that the property is overpriced, which is hardly the case, you might have some leeway by asking the seller to reduce the price. If it’s only a couple thousand dollars this might not be an issue however if it’s tens of thousands of dollars, the seller may not want to reduce the price but they also risk losing the deal altogether.
Terminate the deal.
At this point, you may have the option to cancel the deal altogether. If there still a specific contingency that needs to be completed you may be able to get out of the transaction and get your earnest money back. However, you want to read your contract carefully if you choose to go this route.
Make up the difference.
If you really love the home and you want to keep it you might consider adding in more funds from your own pocket in order to make up the difference. If the appraisal comes in $5000 lower than the offer price, you will need to come up with the $5000 at closing. But remember, you are now paying more than the appraised value and this could add more to the closing costs, title insurance, and recording taxes.
Negotiate with the seller.
More than simply asking them to lower the price, you could ask for them to split the difference. If it’s only a $5000 difference you might ask them if they would split the difference at $2500 each. They know that if another appraisal is ordered it may come in at the same value and they risk losing the buyer altogether. Most people want the deal to close once it’s underway so coming up with a win-win solution is really the best option.
Ways to avoid a low home appraisal.
As a buyer, you want to protect yourself from this by talking to your lender and using an appraiser from your specific County or area. You want to make sure that they understand the value of the property, the community and the region.
- You can request that the appraiser have a residential appraiser certification and a professional designation.
- You can meet the appraiser when they inspect the home and share any information that might help the appraiser come up with the valuation needed.
Nobody ever wants the appraisal to come in lower than the offer price but it can happen. Talking to your agent, good communication and negotiating skills can all help find a solution that works for both the buyer and the seller. For more information on finding the perfect home for sale in St. George and surrounding areas please contact us any time.
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