Buyer

May 10, 2021

Let’s talk appraisals.

After you make an offer on a home, an appraisal will take place before closing if you are purchasing the home with a mortgage loan.

Since the lender is invested in the purchase of the property, they want to ensure it is a fair investment. In short, they don’t want their borrowers to overpay!

Most of the time when buyers and sellers come to an agreement through a written offer, they agree to a fair market price and there are no issues with the appraisal.

Sometimes, however, an appraisal comes in low and sends the deal back to negotiations.

What makes an appraisal come in lower than the offer price?

One reason an appraisal may come in low is because of bidding wars. Multiple offers cause price point to go up, and can raise the offer price to a value above what the appraiser believes is fair market value.

In other situations, the appraiser may have some oversights on the location or condition of the home. Or it may be difficult to find comparable sales due to a unique home or situation.

What can you do as a buyer if your appraisal comes in low?

If your appraisal comes in low, you will need to make a decision about how to proceed as a buyer. Options moving forward include:

Negotiate for a Price Reduction

In many cases, the seller will lower the purchase price to match to appraisal, because they know mortgage lenders will not lend more than the appraised value of the home. However, if the sellers have multiple offers, or buyers willing to pay cash, they may not be willing to lower the price.

Pay the Difference

Even if you are financing the home, you can move forward with the purchase when the appraisal comes in low. You will, however, need to make up the difference that the bank isn’t willing to lend. Sometimes, the buyer and seller meet in the middle instead of one party making up the entire difference.