How to Move Forward with a Low Appraisal

Before closing day, a home appraisal takes place. An appraiser visits the property to inspect the visual aspects of the house. This information is compared to similar properties in the local area. The appraiser then gives a professional opinion of the value of the home, also known as the appraised value.

When the appraised value is the same amount or higher than the purchase price, the sale can move forward without issue. On occasion, the appraised value comes in low. 

Here are four options for moving forward when an appraisal comes in lower than the agreed-upon purchase price:

Seller Lowers Purchase Price

A low appraisal brings you back to negotiations. Often, the seller will lower the purchase price to match to appraisal, knowing that mortgage lenders will not lend more than the appraised value of the home. This means that any buyer who is financing the property will not be able to obtain a loan above the appraised value. 

Buyer Comes up to Appraised Value

Sellers are not always willing to lower the purchase price, even if the appraisal comes in low. Buyers do have the opportunity to move forward with the original purchase price. If financing the home, however, they will need to make up the difference between the loan amount and the purchase amount in cash. Sometimes, the buyer and seller meet in the middle instead of one party making up the entire difference. 

Challenge Appraisal

Sellers can dispute the appraisal or request a second appraisal if they strongly feel the appraised value came in too low. This process can be a bit complicated, so if you find yourself in this scenario, speak with your real estate agent about how to proceed. 

Terminate Contract

Most purchase agreements have a loan contingency. If the buyer can no longer obtain a loan due to a low appraisal, they can walk away from the deal without repercussions. 

While the appraiser is a professional, remember, they are giving their opinion. In real estate, the value of a home is whatever a buyer is willing to pay for it. Whether that is less or more than the appraised value is up for negotiation. 

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