After spending months searching for your dream home, your offer finally gets accepted, and then… the house doesn’t appraise for the agreed-upon price. It happens more often than you might think, especially in rising markets. But it doesn’t have to be a deal breaker.
A low appraisal can happen for any number of reasons. Sometimes the comparable sales aren’t applicable to the home you want, or maybe distressed sales in the area have skewed the appraisal. If the appraisal is less than your offer, you might need to come up with more cash, but you do have other options.
Look over the appraisal contingency clause: An appraisal contingency clause is built into your contract. It means you can reevaluate the situation or renegotiate. But even with a contingency clause, you could end up spending more or walking away to look for another house. Sometimes sellers, buyers, and agents need to work together to make the deal work. Sellers might come down on price, you might pay closing costs, and agents might take less of a commission to make sure the deal still goes through.
Get a second opinion: Maybe the appraisal you got wasn’t accurate. If so, you can ask for a value appeal. The appraiser will review the appeal and respond by reevaluating the property or explaining why he or she did not use the comparable sales the lender sent. To help guard against a lower appraisal, make sure you let the appraiser know the reason you made the offer you did.
Try not to pay more than appraised value: This could be the only house you’ll ever love, but with that mindset, you’re liable to get hurt. Try to remove your emotions from the equation and distance yourself a little bit. If you pay more than the appraised value, you’ll pay more than the house is worth. If you wouldn’t pay more than the list price for a car, or even for shoes, you generally shouldn’t do so for a house either.
Forget about whether you’re in a hot market: Although some buyers pay a premium for houses in hot markets, keep in mind that you aren’t the only one worried about the thought of a low appraisal. Even in a hot market, the seller panics when the appraisal comes in low. Unless cash buyers are ready to swoop in, you can use the low appraisal as an opportunity to renegotiate. As long as you’re not in a hot market, the seller will typically drop down and sell for the appraisal amount. Once someone has established a deal, they usually try to work it out.