The home buying process is a thrill ride of monumental proportions. It’s one fraught with uncertainty at every milestone. Beginning with mortgage qualifying and pre-approval, through the actual house hunt, waiting for seller acceptance of a purchase offer, inspections and finally, the home appraisal. A home appraisal is typically ordered by the buyer’s lender (but the borrower pays for it as part of closing costs). The appraisal is conducted to ensure the purchase price and the true market value are inline. If a home appraises for more than the agreed purchase price, it’s cause for celebration. But, if the appraisal comes in low, it’s real cause for concern.
Ways to Deal with a Low Home Appraisal
So, you’ve done all the hard work to this point. You diligently saved money for a good down payment, cleaned up your credit files, put aside cash for an earnest money deposit, inspections, moving and closing costs. In fact, you’ve already begun to look into ways to reduce closing costs so you’ll have a little extra when the keys are put in your hands. But, now you’re learning the appraisal isn’t supporting the agreed purchase price.
“There’s no way around it: any home purchase financed by a mortgage involves an appraisal. This is how the bank ensures that the size of the loan isn’t greater than the value of the collateral (the house) needed for the loan. So what happens when the appraisal comes in below the price you and the buyer have agreed upon? Until your agent calls to tell you the appraisal came in below the agreed-upon sales price. Whomp, whomp, whomp.” —Forbes
According to the appraisal report, the home just isn’t worth what you’ve agreed to pay. Some buyers take this news as a raw deal, believing the seller purposely fooled them into agreeing to pay more than the home is worth. Other buyers are devastated to hear such news. Now, you do have the option simply to cover the difference but of course, that means shelling out more cash. That’s not a good option but you still want to buy the house. So, here are some ways to deal with a low home appraisal:
- File an appraisal appeal. If you don’t believe the appraisal is accurate, you can file an appeal or what’s also called a “rebuttal of value.” You’ll have to work with the seller, your agent and the seller’s agent in a team effort. Together, you’ll find comparable properties that prove the higher sales price is indeed the true market value.
- Order a second appraisal. Another similar option is to order a second appraisal. While you’ll pay for two home appraisals, the bet might be worthwhile. To save the deal, ask the seller and real estate agents if they’ll chip in to pay for another appraisal. After all, it’s in their best interest to keep the deal alive.
- Negotiate with the seller. One undeniable but often overlooked fact in the world of residential real estate is pricing a home too high. It’s a tactic some sellers use, believing it leaves room to negotiate. Others do so because of a red-hot market and trying to price accordingly. Whatever the reason, if the appraisal is low, try to negotiate the price down. Or, ask the seller to meet you halfway, splitting the difference.
- Walk away from the deal. There are different ways to back out of buying a house and most are based on contingencies. Since a low appraisal doesn’t support the agreed selling price, you probably won’t qualify for financing and this allows you to simply walk away.
If you are considering buying a home in Orlando, contact us for the latest market information. We’ll also provide you with the right advice to find a house quickly and for the best price.