Appraisal Issues
You've signed the contract, bugs have been smoothed out, details are clear and
things are moving along nicely. Inspections have been completed, the results
were acceptable and the closing date is nearing its target. Everyone is waiting
for the results of the home appraisal. T he house sold for a reasonable price and
no one is too worried, but the loan commitment letter still needs to be issued. Then, everyone gets a phone call. The appraisal is $7500 less than the sales
price. Everyone wants to panic - buyers, seller, agents, etc. - what can be done? Don't panic. Relax. Take a deep breath. Due to the fact that one or both parties
may have another contract waiting on the successful completion of this one, it's
very possible that a solution can be found. Keep you cool, develop a plan and if
you work through the problem, the sale can move forward. In order to resolve the
issue, here are some possible options:
Seller reduces price
This isn't the only solution, but it is a very common one. Is the seller willing
to reduce the price of the home? Many sellers are willing to negotiate in order
to save the sale. If the buyers are obtaining a mortgage, they can probably back
out of the contract, based on a financing contingency, because the low appraisal
will affect the way the lender views the home. However, if the seller reduces
the price, there is no need to back out. If you are a cash buyer, be sure to
become protected with a contingency clause stating that you can get out of the
deal if the appraisal doesn't come in at or above the selling price.
Buyer Pays More
Depending on how badly the buyer wants the home, the buyer may chose to make a
larger down payment. However, this might not correct the problem. Sometimes,
although the buyer is prepared to pay additional money to make things work, the
lender still won't approve the loan. Often lenders don't want to finance a
property with a negative equity, despite the buyers willingness to take a risk. Be prepared to find out all your options if you chose this scenario.
Buyer and Seller Negotiation
Buyer and Seller are both willing to give a little and they come to an
agreement. If needed, an attorney or outside influence could be called in to
mediate.
Dispute the Appraisal
You can always ask the lender for another appraisal or ask the original
appraiser to re-evaluate the property. Your agent should be able to find out
which houses were used as comparisons. If your agent doesn't agree that they
were good comparables, talk to the appraiser. Most appraisers haven't seen other
houses up close the way real estate agents do. It is possible that the appraiser
used houses that either needed a lot of work or weren't as comparable as the
appraiser first thought. If poor condition of the houses can be verified, it
wouldn't hurt to ask the appraiser to see if any adjustments could be made.
Personal Property Won't be Included
An appraiser can only put a value on land and improvements of land. If your
original contract includes furniture or other types of property, other than
land, it won't be considered as part of the appraisal. If other personal
property is desired by the buyer, it should be paid for separately.
Ensure Promised Funds Are Available
Often sellers promise to pay all or part of the buyer's closing costs. Keep in
mind that if the price of the home must be reduced, the sellers may not want to
pay the closing costs. Always talk with your lender about their policies and be
sure to get this agreement in writing, in case the appraisal comes in lower than
expected.
Bottom Line
Sometimes it takes a low appraisal for a seller to become convinced that his
house is overpriced. If it is, the asking price should come down. If the seller
is willing to work things out, a low appraisal won't matter as much. If the
seller isn't willing, you might have to consider withdrawing. Either way, you'll
find some resolution.
Go Back
