What Happens If Appraisal Comes Back Low?
Low Appraisal? Here’s what you can do.
When a home is appraised, it provides a snapshot of the home's value based on similar closed sales in the area.
A low appraisal can put the brakes on a home purchase, because lenders base their loan approval on an appraisal.
The good news is that there are several options to take if your appraisal comes back low. These include negotiating with the seller, walking away from the deal or offering to put more money down to make up the difference.
1. Negotiate with the Seller
If you're a buyer, there are a few options if the appraisal comes back low. The first option is to negotiate with the seller and try to get them to accept a lower price. This may seem counterintuitive, but it's often worth it if you can make a better offer.
The key is to be able to point out why the home's appraisal came back low, or what the problem is that caused it. This is important, because it could give you leverage and help you sway the seller toward your offer.
For example, if the appraisal is low because it doesn't have enough equity, you could ask the seller to add some cash to your down payment to cover the difference. Or, if the appraisal is low because of repairs that need to be made, you could offer to pay for them yourself.
Another option is to ask the lender for a second appraisal. However, only you - the buyer - can request this.
A third option is to simply accept the appraisal and keep the sale going. This might not be the most appealing option, but it can work if you're a buyer who has put down more than 20% of the purchase price.
You can also challenge the appraisal if you believe it's inaccurate, although only you have this power. If the buyer is open to this, you could put together a list of recent comps that show the property's true value and share it with the appraiser before the sale goes through.
One downside to this approach is that the home may not sell at the original price if you do it. This is because a lender can't calculate your loan-to-value ratio (LTV) without an accurate appraisal.
You can always find some way to compromise with the seller, so that you both end up happy with the deal. For example, you might ask the seller to cover more of the costs of the inspection or even to rent back a portion of the house to you for an extended period of time.
2. Walk Away from the Deal
If your home appraisal comes back low, there are a few things you can do. As the buyer, you can either request a second appraisal or work with the seller to negotiate a new sales price. If the seller won't budge, you can walk away from the deal.
Whether you're buying or selling, knowing when it's time to walk away from a deal is an important skill to develop and practice. As a result, you should always have an idea of what your walk away terms are before you start any negotiation. This will help you to stay in perspective and avoid wasting your time on deals that are not moving forward.
It is also important to think about your personal values and why you're in the business of selling. This will help you to remember that you are doing it because you want to make a positive impact on someone's life, not just to get a deal done.
There are times when you need to walk away from a deal for several reasons, but one of the most common is that there just isn't enough budget to buy your product or service. In some cases, if you've worked hard to prove that your service is worth the money and they still don't have the funds, it's best to just walk away for now.
Another reason to walk away from a deal is that you simply feel like the sale isn't going to be a good fit for both parties. If the other party is using low-ball tactics or trying to pressure you into a lower price, it may be time to call it quits and find a different prospect.
Walking away from a deal is never easy, but it can save you time and money in the long run. It can also save you from hurting your credibility and damaging your relationships. If you're able to do this, it's a great way to show your clients that you value their business and their trust. Plus, you'll be able to move on to more profitable opportunities.
3. Split the Difference
If you’re a buyer, and your appraisal comes back low on a home you are buying, there are a few options for dealing with this issue. You can renegotiate with the seller, pay the difference, or walk away from the deal altogether.
If the seller is willing to renegotiate, you may be able to save the deal. However, this option is often impractical when it’s a buyer’s market and sellers outnumber buyers. If you don’t have enough cash on hand, this option can be a risky one.
When an appraisal comes back low, it can have a negative impact on your loan-to-value ratio. That means your mortgage lender won’t make you a loan that exceeds the value of the property.
That’s why it’s essential to have a realistic sales price and appraisal before you put the house on the market. In a competitive market, an appraiser might find that your home is worth more than you are paying for it.
The most straightforward way to deal with this situation is for you and the buyer to split the difference. For instance, if you are selling a $300,000 home that you were planning on putting $60,000 down on, a buyer who pays the difference will only need to put $10,000 down instead of $60,000, which can help them qualify for a lower loan amount and reduce their private mortgage insurance (PMI) payments.
Challenging the appraisal is another option, but you must have substantial evidence that the home is not worth what it’s assessed at. For example, you can use comps that are closer to your home than the ones that the appraiser used. You can also present documentation that the appraiser is unfamiliar with your area and was unable to properly assess the market.
4. Wait for Market Conditions to Improve
The real estate market is a hotbed of activity thanks to increasing demand and low inventory. While this has certainly helped boost the ol' shack in many areas, it can also be frustrating for those looking to make a move. While there is no such thing as a guaranteed sale, a little patience can go a long way in ensuring that the transaction happens on time and on budget. The best way to get a leg up on the competition is by staying current with the latest home buying trends and avoiding any red flags that may be cropping up in your neighborhood. The best places to start are your local MLS and your favorite real estate agent.
