You finally got an offer on your home, the home inspection results were negotiated successfully and then the bank ordered an appraisal . Thats when things went wrong. There could be a lot of reasons why it didn’t appraise but that’s another post.
When your home doesn’t appraise you have a several options. I am going to discuss each of these options and some of the pitfalls with each of them.
So lets say for the sake of having a number to work with your home was under contract for $165,000 and the appraisal came in at $150,000.
As soon as this happens your Realtor® should see if they can find any comps that they could send to the appraiser that they might have overlooked. This doesn’t always work. Many times there are other reasons the appraiser has to use the comps they chose (i.e. date of sale, proximity, etc.).
1.) Your first option is to ask the buyer to pay the difference. This is the best deal for you, the seller, but it usually doesn’t work. In todays real estate market many buyers are getting USDA (100% financing) loans, and many of the others who are getting FHA (min.3.5% down payment) and Conventional (min 5% down payment) are only putting down the minimum down payments and asking for most of their closing cost to be paid due to lack of funds. This lack of funds makes it impossible for some home buyers to come up with their down payment and closing cost plus the $15,000 difference in the appraisal.
Many other buyers simply will not come up with the extra funds because they see it as purchasing a home which is upside down in equity based on the appraised value.
2.) Your second option is to try to reach a mutual agreement with the buyer. Maybe they will come $7500 out of pocket and you can meet in the middle at $157,500. This is a better option for many buyers who don’t have the cash to come up to the full amount over appraised value. Buyers still have similar concerns as in option one, but it does require less upfront money for the buyer.
Both option one and two may be limited to buyers who have the money and feel that this property is a sound investment despite the appraisal, or they have excess funds and have just really fallen in love with the property.
3.) Your third option is to lower your sales price to the appraised value. This option is the most common and there are several reasons for this. Many of which pertain to the buyers feelings on this as mentioned above. However, the main reason for this is due to the fact that even though an appraisal is a professional opinion of value there are many common statistics that go into finding this value. Therefore, if you can’t come to an agreement and end up canceling the contract, you will have to wait for another offer and there is a good chance the next appraiser will come to a similar value. This obviously can be hard for a seller but due to the likelihood of new offers and their appraisals being valued the same, lowering the sales price is usually the best plan of action.
Of course if the appraised value is something you can’t handle then you may need to remove your home from the market and wait until the market catches up. Just be sure to talk with your Realtor® to see what the price trend is in your market.
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