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What happens if my appraisal comes in low?
A question that comes up a lot when writing an offer on a house is “What happens if my appraisal comes in lower than the purchase price?” This has been a common issue with multiple offer situations. Before getting into a mutual contract the appraisal is something that both the buyers and sellers consider. In the Snohomish County area, inventory is at a three-year low which means there are fewer houses than there are buyers. This is making it extremely common to have bidding wars on houses. When a bidding war happens you have to consider if the amount you are offering is going to worth it in the appraiser’s eyes.
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If you hire a real estate broker that is experienced and knowledgeable you can usually avoid having a low appraisal. However, no one has a crystal ball, and sometimes you do end up with an appraisal that comes in under value. You just work through it with your agent who will negotiate on your behalf with the listing agent and seller.
What to do with the news of a low appraisal?
It might seem like the end of the world when you hear that the house you have a contract with is not at value. This does not have to be a deal breaker. You have options to choose from when an appraisal comes in lower than the purchase price. With a hot market that has a low inventory, it can be extremely hard for appraisers to find comparable homes for their report. Below are some ideas of how to proceed in the contract.
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Ask the appraiser to re-evaluate
Re-evaluating an appraisal can either work in your favor or against you depending on the situation. Sometimes, asking the appraiser to re-evaluate can be great! Your agent would send them the comparables they found and you can get the value raised. Othertimes, appraisers might take a second look and decide it is worth less than the first time they appraised it. We would say that it’s a gamble doing this. There is no way of knowing which way the appraiser will go when re-evaluating. If there are truly a bunch of comparable homes in the area that support a higher price then you will most likely be in a good position to argue the low appraisal. If you are buying a house in an area with hardly any comparable homes, I would be careful when asking to get a new value. If you are using an FHA loan the appraisal sticks for 6 months so this might not be the best option.
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Negotiate with the Seller
Another option to consider when you get a low appraisal is negotiating with the seller. You can ask the seller to come down in price to meet what the appraisal report says the house is worth. If the seller is unable to come all the way down in price you can see if the seller would meet you in the middle. Meeting you in the middle means you will have to come in with some cash and the seller will lower their price. Both parties can usually feel good about meeting in the middle and is a great solution. Before agreeing to this we suggest you talk with your lender to double check this solution is okay with your loan.
Neither of the above options work? Don’t worry! You will most likely have a financing contingency in your purchase and sale agreement. The financing form has a paragraph stating that buyer has the right to terminate the contract if the seller is unwilling to lower the price to the appraised value. You do not have to come up with the extra money if you do not feel comfortable or are unable to pay over the appraised value. There are ALWAYS more houses on the market no matter how low the inventory gets. Buying a house can be one of your life’s biggest investments and you want to feel 100% great about what you are buying. If you do decide to rescind the contract, your agent would send over the rescission to the seller. After the seller signs you usually get your earnest money back from escrow. The only time you wouldn’t is if there is a waived financing contingency or non-refundable earnest money.
*This information is not guaranteed and is written from our experiences*