Who exactly IS at fault when an appraisal comes in lower than the agreed to sales price on our contract? And what IS a home appraisal based on?
According to Wikipedia, a real estate appraisal is “the process of valuing real property”.
Even though in real estate we typically say a home’s value is based on what a seller is willing to sell for and a buyer is willing to pay, we are still required to undergo an appraisal.
An independent Appraiser will come out to your house and ultimately put a value on what they believe the home is worth. They will use recently sold homes, local market conditions, inventory, special features, and unique characteristics to put a price tag on the home you are buying or selling.
In a perfect world the appraisal would come in at or above the agreed to price on our contract but it doesn’t always happen that way.
If an Appraiser sets a value on your home that comes in too low to move forward with the home loan, we have four options:
- Contest the appraisal - We can provide our own comparable properties, neighborhood sales information, and other details to the Appraiser to argue for a higher appraised value.
- Order a new appraisal – We can order another appraisal from a new Appraiser independent of the first appraisal. This will have an added cost but could get the value we need to move forward with our sale or purchase.
- Reduce the sales price - This is the option most buyers will want to pursue. We can request the sellers reduce the price of the home to the appraised value and continue with the purchase.
- Buyer can pay the difference – If the Appraiser won’t raise the appraised value and the seller won’t lower the sales price, our final option is for the buyer to pay the difference between contract price and appraised value. This will be done at closing in the form of a larger down payment.
Would you like to find out what your home is worth in today’s real estate market?
Contact me today and you’ll have a complete analysis by email within 24 hours.