A low appraisal can seem like a major setback, but it doesn’t have to torpedo a sale. Here’s how to deal with a low appraisal, so you can get as close as possible to your asking price.
What Is a Home Appraisal?
A home appraisal is an independent assessment of a property’s market value. It is typically required by mortgage lenders before financing the purchase of a home. The appraisal helps ensure that the home is worth the price the buyer is paying.
Why Do Buyers Need Appraisals?
For homebuyers using a mortgage, an appraisal is a critical step. It protects the interests of both the buyer and lender. Appraisals prevent buyers from overpaying and lenders from over-lending. If the appraised value is lower than the price offered, the lender may not approve the loan.
Who Conducts Appraisals?
Appraisals are performed by licensed, third-party appraisers. To avoid conflicts of interest, the appraiser cannot have any relationship with the buyer or seller. Appraisers visit the home to assess its condition and compare it to similar properties that have recently sold nearby.
Appraisal Contingency Clauses
Many home purchase offers include an appraisal contingency. This gives the buyer an “out” if the home appraises for less than the offered price. The buyer can cancel the contract and get their earnest money deposit back. Sellers can avoid this outcome by pricing their home accurately from the start.
Dealing with a Low Appraisal
If the appraisal value is lower than expected, buyers and sellers can negotiate to keep the deal together. This may mean that the seller reduces the asking price. Or it could mean that the buyer increases their down payment. Creative financing options like seller financing are another way to deal with an appraisal that’s lower than expected.
The Bottom Line
Appraisals are a normal step in real estate transactions. When prepared by a qualified professional, they help guide fair housing prices. Unfortunately, sometimes low appraisals can complicate a real estate transaction, especially when the homeowner is in a hurry to sell.
With that said, the best way to deal with a low appraisal is to prevent one in the first place. While some low appraisals are unavoidable, an experienced real estate agent can help you sidestep avoidable issues by providing comps to prove your home’s value. They can also give you tips to repair potential problems and make targeted upgrades before an appraisal. If you do end up with a disappointing number, a good agent can help you make the best of the situation and negotiate a deal that will get you as close as possible to your asking price.