What buyers and sellers can do if the appraisal comes in low.
We’re currently in a hot market. Demand is high, supply is low, prices are rising, and occasionally, we run into a situation where a house is under contract for more than the appraised value. What happens in that situation, and what do buyers and sellers do?
An appraiser will come up with a valuation based on other sales in the area, and therein lies part of the problem. The appraisal is based on a history of homes that have sold in the past. In this rising market, prices are going up, and the appraiser cannot keep up with how quickly the values are rising. When an appraiser looks back to find comparable properties, the prices are a bit lower than what’s selling today.
If the offer has a financing contingency, the lender will do an appraisal regardless of whether the appraisal contingency has been waived or not. The lender will only lend up to the amount of the appraised value. If the appraisal comes in low, three things can happen within the transaction if the buyer has not waived the appraisal:
1. The buyer can renegotiate the price. As the seller, you have the option to reduce the purchase price.
2. The buyer then has the option of canceling the contract if the seller refuses to reduce the price. This is only if you did not waive the appraisal.
3. The buyer agrees to pay the additional money as cash at closing.
A low appraisal causes issues regardless of if you are the seller or buyer. Since this market is moving so quickly and the appraisers are having a hard time keeping up with rising costs, one of the best things your real estate agent can do is provide comparable properties for the appraiser to make sure they have the latest market data. That way, the appraiser has the most up-to-date comparables.
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