You’re in the middle of the home selling process, having accepted a buyer’s offer. But after your house is appraised, the reported value comes back lower than the agreed-upon price. What happens now? Does the deal fall through? In many cases, especially in a hot sellers’ market, this is a common occurrence. Bidding wars often inflate prices so quickly that appraisers don’t recognize homes as being worth the offering prices yet. The good news is that there are still several alternatives to letting the contract fall apart.
Remember that a home appraisal is a professional estimate of the value of your home, based on the condition of the house and nearby comparable properties. It is required by the buyer’s lender to protect themselves from loaning more money than the home is worth.
If it comes in low, the first thing you can do is ask the buyer to appeal the appraisal. It is possible that the appraiser did not have all the information, used inappropriate comps, or is not familiar enough with the area to give an accurate value. Your real estate agent should be able to provide you with comparable homes in the area and their selling prices. You can show this to the original appraiser or order a new one with a different company. However, each appraisal costs between $300 and $600, so either you or the buyer must be willing to pay for another assessment. And of course, there is no guarantee the second appraisal will come in higher.
If the difference in the appraisal and offered price is small, you may ask if the buyer would be willing to pay their lender the sum in cash. For example, if your buyer offered $310,000 but the appraisal only came back at $300,000, the deal could still go through if they simply increased their down payment by another $10,000. The lender just wants to see the loan-to-value ratio stay within certain limits; they don’t necessarily care what the actually purchase price is.
If you are eager for this particular deal to go through, you could try working out a new price with the buyer. This doesn’t mean you have to come all the way down to the appraisal price. In a sellers’ market, the appraisal values can be slow to catch up to market conditions, and the buyer may still be willing to pay more than the appraisal price. For example, if the buyer originally offered $300,000 but the appraisal came in at $280,000, you could split the difference: you lower the price by $10,000 and they come up with another $10,000 for their loan.
If you have enough cash and you are sure your home is worth more than the appraisal value, you could offer to loan the buyer the difference. Of course, you should draw up a legally binding contract with the help of a lawyer if you’re interested in this option.
And sometimes, the best plan is to cancel the contract with this buyer and re-list. In a sellers’ market you should have a problem finding another buyer quickly. The downside is just the hassle and time of going through the process again.