You found the perfect buyer for your home and started the countdown to closing. Unfortunately, the appraisal came in below your offer price, and you’re wondering what to do next.
Will the entire deal go up in flames, or can you negotiate a lower sales price with the buyer? It depends, and your real estate agent can guide you in the right direction. In the meantime, this guide will help you understand what triggers low appraisals and options that may be available to you.
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What is an Appraisal?
An appraisal is conducted by a professional, third-party appraiser to determine the market value of a property. Lenders generally require an appraisal before the deal can close to ensure the purchase price is appropriate and that the buyer is not paying far more for the property than it’s worth. Ideally, the value of the home should exceed the loan amount, or the lender risks sustaining losses if your buyer defaults and the home goes into foreclosure.
How Does a Low Appraisal Happen?
Real Estate Market Changes
If the real estate market in your area is thriving, chances are inventory is low and prices are high. Unfortunately, appraisals cannot account for bidding wars and outrageous asking prices.
Wrong Property Evaluation
Did the appraiser use the wrong comps when evaluating the property? If they were for pending home sales or the comps were outdated, there’s a chance the appraisal could come in too low.
Inexperienced Appraiser
A low appraisal could result from the appraiser’s inexperience or lack of training. In some instances, they may not be well-versed in your local market and assess the incorrect value of the property.
Submit an online application form to inquiry about Angel Oak Mortgage Solutions financing options.
Older homeowners can get peace of mind and added financial security with a reverse mortgage from AAG.
Buy a home or refinance your existing mortgage with Zero Mortgage.
What to Do If Your House is Appraised for Less Than the Offer
Reduce The Selling Price
As a seller, you have an option to reduce your asking price to equal the appraised value. You’ll eat into your profits, but the transaction can go on as planned.
Dispute and Get a Second Appraisal
If you disagree with the initial appraisal, submit a Reconsideration of Value (ROV) to dispute it. But before you submit, you’ll need to find comparable home sales in your area to strengthen your argument. Or you can ask the buyer to appeal the appraisal with the lender.
You’re also allowed to get a second appraisal. However, keep in mind that you may have to foot the bill, and the results may not be what you hoped for, as professional appraisers are required to abide by the Home Valuation Code of Conduct.
Cancel and Relist in Another Place like an iBuyer
If you’re unwilling to reduce the asking price because you’re confident the home will sell fast, consider canceling the deal and relisting it. You could get a buyer willing to pay the difference between the appraised value and purchase price in cash. There’s also a chance that the appraisal will come in higher on a subsequent transaction.
