Here are the two options buyers have if the appraisal comes in too low.
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What happens when the appraised value doesn’t meet the contract price? If the appraisal comes in lower than what you’ve offered for the home, there are a couple of options.
One is to ask the seller to decrease their price and hope they’re willing. Often they aren't, but you should always ask. If we’re representing you, we’re always going to fight to try to get that seller and their agent to lower the price because it’s only fair that you pay what the home is truly worth.
Appraisers choose three active comparables and three that recently sold, and those help them determine the house’s value. They add and take away price values for fireplaces, garages, square footage, area, etc. Unfortunately, they always look at properties near the house they’re appraising, and if they sold for much less, it’ll be difficult to get the right price.
"Your first option is to ask the seller to reduce the price."
If the appraisal comes in low, it can cause issues because the lender doesn’t want to give you more money than the appraisers are saying the home is worth. So the second option you have is to come up with the difference in the prices in cash. There are a couple of ways to do that. It doesn’t have to be dollar for dollar; you can change the loan-to-value ratio.
For example, you may have been putting 10% down, but instead, you could do 5%. That way you don’t have to come up with the difference—you just have a different loan ratio. We’ve had success doing this a few times in this wacky market. As long as there’s some money to work with, we can change the loan-to-value ratio and both help the buyer move forward and keep the seller happy.
If you have any questions about low appraisals or real estate in general, call or email us. We would love to be your real estate resource.
