Ok, time to take a couple deep, slow breaths if your appraisal came in lower than the purchase price.

This doesn’t mean the deal is dead, you have a few options available to you!

First, why is an appraisal a big deal anyway?

An appraisal is ordered by the lender and paid for by the buyer. The appraisal is usually only a big deal on deals that are being financed by a lender.

The appraisal protects the lender from lending more money than the home is worth.

So, for cash buyers, it’s usually not a big deal to even have an appraisal in the first place.

Ok, so why might have the appraisal come in low in the first place? Here are a few common reasons:

Increasing seller’s market: in a seller’s market, home prices increase rapidly in bidding wars. This can artificially raise the value of homes in a local market and lead to a bubble. Appraisers usually can spot this and make sure they have more solid info to support the value of a home

Slow buyer’s market: in this type of market, home values are much lower than sellers may list their homes for.

Inexperienced appraiser: appraiser’s are human and sometimes their judgement calls aren’t fully accurate. Also, appraisal details are often subjective as far as which comparable are use and the condition of the property.

Seasonality: the timing of real estate is wildly important. Maybe in your local market, seasonality like winter

Once you get notified that the appraised value is lower than the purchase price, you’ll need to work with your realtor to arrange an agreement with the other party in the transaction.

There are normally 5 main remedies for an appraisal that comes in lower than the purchase price.

(1) Make up the difference: this is where you bring extra money to the closing table. You’ll bring the difference of the appraised value and the purchase price to close. If you’re putting down more than the minimum down payment, you might be able to pull the funds from that.

(2) Get a price reduction: you could ask the seller to come down in price to meet the appraised value

(3) Split the difference: the seller will give up half the difference and you will bring half the difference

(4) Challenge the appraisal: you could submit new comparable to the appraiser to have the value reconsidered, this rarely will change the value though.

(5) Cancel the deal: if no solution can be worked out, it might be time to walk away. You might not have got the house you wanted, but at least the appraisal protected you from overpaying

All in all, a short appraisal isn’t the end of the world. After a short appraisal, I only see about 10% of the deals cancel.

This is because, normally, everyone is eager to close and usually willing to compromise something to do so.

If it happens to you, take a deep breath. It will be ok! Roll with the punches and create a plan moving forward.
Hey, my name is Kyle and I'm a Mortgage Advisor serving Tennessee, Florida, and Ohio. My goal is to help you get a crystal-clear home loan that helps you win the house you love. If you're ready to create your home-buying plan, you can reach me through any of the ways below:

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