How to Deal with
a Low Appraisal - Solutions to Save the Contract
by Janet Wickell
from http://about.com/
Don't panic if the appraisal is low
The contract on your home is signed and details
are progressing nicely. The buyers felt it was
safe to go ahead with inspections, and the results
were acceptable. The closing date is on target.
Everyone is waiting for the results of the home
appraisal results so that a loan commitment letter
can be issued. No one is too worried, because
the house sold for an appropriate price, and appraisals
have a magical way of coming in just where they
need to be.
The Phone Call
Everyone gets a phone call. The home appraisal
is $8,000 less than the sales price. Buyers, sellers,
and agents all panic--is there anything you can
do?
Keep Your Cool
One or both parties may have another contract
that hinges on a successful completion of this
one, and getting bad news can make everyone a
basket case, especially when it's close to closing
day. It's easier to work through the problem if
you stay calm, so keep your cool and develop a
plan, because there are solutions to make the
sale move forward.
Possible Options
Seller Reduces Price
Hold on, that's not the only solution, but it
is a common one. Would the seller be willing to
reduce the price of the home? If the buyers are
seeking a mortgage, they can probably back out
of the contract due to the financing contingency,
since the low appraisal will affect the way the
lender views the home. The seller may be willing
to negotiate to save the sale.
A cash buyer should have been protected with a
contingency clause that states she can back out
of the deal if the home doesn't appraise at or
above the sales price.
Buyer Pays More Down
The buyer may want the home badly enough to make
a larger down payment, but don't assume that will
correct the problem. I've been involved in home
sales where buyers were prepared to pay additional
money down to make a deal work, but lenders would
not approve the loans. They did not want to finance
a property that the buyer went into with a negative
equity, even if the buyer was willing to take
the risk.
Seller and Buyer Negotiate
Seller and buyer come to an agreement, both giving
a little.
Dispute the Appraisal
Ask the lender for another appraisal. The lender
may send out a new home appraiser or ask the original
appraiser to reevaluate the property.
Ask your agent to find out which houses were
used as comparables. Does the agent agree they
were good comps? Most appraisers haven't seen
the comps up close and personal the way agents
do. The home appraiser might have unknowingly
used houses that needed a lot of work. If poor
condition is verified, ask the appraiser to investigate
the comparables to see if adjustments should have
been made.
Does the Contract Include Personal Property?
Home appraisers only put a value on real property,
the land and the improvements to the land. If
the contract includes furniture and other types
of personal property, it won't be a part of the
appraisal. Buyers should pay for it separately.
Is the Seller Paying Funds to the Buyer
at Closing?
This often works, but it can be killed by a low
appraisal. Always talk with the lender about their
policies and the proper wording for this type
of agreement. Then be prepared to deal with it
if the appraisal comes in low.
Bottom Line
If the house is truly overpriced, the sales price
should come down. Sometimes it takes a low appraisal
to convince a seller that his price is out of
line.
Follow the links above right to read more advice
about appraisals and other home buying topics.
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