Options When the Appraisal Comes in Low
BY Zach Festini
Published: September 23, 2014 | 5 min read
Home appraisals are part of the real restate transaction process to ensure both the buyer and seller strike a relatively fair deal. Typically performed by the buyer’s lender, an appraiser’s goal is to determine if the agreed upon sales price is correct so the lender doesn’t give more than what the property is worth.
Unfortunately, an appraisal doesn’t always add up, and there is a gap between the agreed upon sales price and the appraisal value. When the appraisal comes in low, there are a few options to resolve the situation.
Have the Buyer Make Up the Difference
Perhaps the simplest solution is to have the buyer pay the rest of the money out of pocket. If the buyer and seller agreed on $280,000, but the appraisal was only $250,000, the buyer could use their own money to cover the additional $30,000. This tends to work best when:
- The buyer has the extra money on hand to make up the difference
- The buyer is in love with the house
- The buyer and seller both believe there was a low ball appraisal
- Home values are expected to rise in the area
While this isn’t always a realistic option, it’s definitely a possibility when the buyer has the funds and meets at least one of the other criteria.
Get a Second Appraisal
In some cases, a low appraisal is the result of an incorrect evaluation from an appraiser. There are three common reasons for an incorrect evaluation. First, the appraiser doesn’t fully understand the subtle nuances concerning home prices in the local market. Second, they look at comparable sales from the wrong neighborhoods, which skews the data. The third is that they fail to consider upcoming sales data, which will lead to higher comparable sales prices in the area.
When either or both parties doubt the competency of an appraiser and feel that the appraisal is incorrect, it’s best to ask for a second one. While this won’t always happen if it’s strictly the buyer making the request, if both parties are on the same page, the lender is likely to listen. Ideally, the lender will be supplied with a list of comparable sales in the area that justify the sales price or other data that suggests that home values will rise in the near future.
Have the Buyer Look for Another Loan
Another option is for the buyer to check out other loans to see if a more generous lender can be found. Sometimes, looking around at different lenders will result in a higher appraisal that either matches the agreed upon sales price or is at least closer to it. Although this will require some additional time and effort, it can potentially lead to a house deal getting closed.
Reduce the Price
If all else fails and none of the previous options work out, the buyer can come down on the price. One possibility is to come down all the way to match the appraisal value exactly. The other option is to negotiate where the seller meets the buyer halfway and the buyer comes up with the remaining money out of pocket.
This usually works best when the seller is in a hurry to finish the transaction and doesn’t foresee getting a much better deal. The idiom of “a bird in the hand is worth two in the bush” applies here.
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Home appraisals are part of the real restate transaction process to ensure both the buyer and seller strike a relatively fair deal. Typically performed by the buyer’s lender, an appraiser’s goal is to determine if the agreed upon sales price is correct so the lender doesn’t give more than what the property is worth.
Unfortunately, an appraisal doesn’t always add up, and there is a gap between the agreed upon sales price and the appraisal value. When the appraisal comes in low, there are a few options to resolve the situation.
Have the Buyer Make Up the Difference
Perhaps the simplest solution is to have the buyer pay the rest of the money out of pocket. If the buyer and seller agreed on $280,000, but the appraisal was only $250,000, the buyer could use their own money to cover the additional $30,000. This tends to work best when:
