This is what a low appraisal means and how we handle them.
If you’ve been watching the housing market or are considering buying or selling a home, you’ve likely heard of the low appraisal issue. Today I’m explaining exactly what it is and what can happen in response.
The appraisal’s primary purpose is to help the bank see the value of the property so they can decide how much money they’re willing to lend for it. The appraisal is based upon what happened before, not what’s happening right now; the appraiser looks at houses that have sold. When you have a rapidly increasing market with a ton of buyer demand, like we do these days, there will be properties under contract that may not close in time to be used as a comparable for your transaction. This is why some buyers are willing to pay more for a home than the bank is willing to lend.
There’s give and take in any transaction.
So what happens when you get a low appraisal? It means we’re back to the negotiation stage. If you have a clean contract with just a sales price and no closing cost assistance (or something similar), then it’s likely the contracted price will be reduced down to the appraised value. If you have closing cost assistance, that means more negotiation between the buyer and seller because the seller is reducing their price to where the buyer can get a loan, and the buyer is trying to figure out how much cash they can bring to the table because their closing cost help may be reduced. This is the typical outcome of receiving a low appraisal.
Other things can happen, such as negotiating away the appraisal contingency, which means the buyer will have to come up with all the cash between the contracted price and appraised value. There’s give and take in any transaction; everything is a negotiation. Any of these situations can be negotiated differently, but these are the situations we see most often.
If you have questions about low appraisals or any other real estate topic, call or email us. We would love to help you.