An Action Plan for a Low Appraisal
If the appraisal just came in lower than the offer, you are probably feeling like you are the only person something like this could happen to. But you’re not. In fact, you would be surprised at just how often this happens. If you just received a low appraisal, here are your next steps.
- Don’t Panic – The natural reaction is to panic, regardless if you are the buyer or seller. Take a deep breath and relax. You can feel good knowing you have more options than you think.
- Review the Appraisal Contingency Clause – If there is an appraisal contingency clause in your contract then you can reevaluate or renegotiate. Generally, all parties involved are going to have to bend a little to make the sale work.
- Request Another Appraisal – Not every appraiser is going to view a home the same way. It is not uncommon for an unexperienced appraiser to make a significant mistake. The second appraiser could come in with a much higher price. If you will have an FHA loan, your lender can provide you with a list of approved appraisers.
- Cash Difference – The lender is only looking at the loan-to-value ratio. So, you could make up the cash difference. You may want to borrow from a relative or from your retirement fund.
- Reduced Price – If the value of the home was inflated the seller may be willing to reduce their price a bit. This is a prime example of a buyer and seller working together because if the seller reduces a bit and the buyer makes up some of the difference in cash, they may be able to make it work.
- Second Mortgage Through Seller – Rather than lose the sale, the seller could carry a second mortgage for the buyer for the difference. The terms could require the buyer to make payments or to simply pay a lump sum at a later time.
- List Comparable Sales – Your agent could put a list of recent comparable sales together justifying the price. The list can be submitted to the underwriter. You should also ask for a copy of the appraisal.
- Evaluate if the Home is Really Worth It – You have your heart set on this home, but do you really want to pay more than the appraised value? You could end up with a pretty big case of buyer’s remorse.
Low appraisals don’t have to be the end of the world and they do not mean that your dream of buying that house is shattered. The transaction may be a little more complicated, but you definitely have options.