When the home buying process gets to the point of a serious offer, it is kind of an exciting thrill ride of ups and downs until closing. One of the big variables that can throw a monkey wrench in the works is when the appraisal comes in lower than the accepted offer. This can leave a seller feeling like they paid more for a home than it’s worth, or they must scramble to make up the difference with extra funds or the deal may fall through.
Right now, appraisals are based on comparable sales that closed when prices were lower. In a rising market, comps can’t keep up with home sale prices in a competitive market, so values may be lower than expected. If you have a gap between your loan amount, you may be asked to come up with a larger downpayment.
But don’t despair, you have several options:
1. You can appeal the appraisal
The appraisal appeal, or “rebuttal of value,” is a team effort. The loan officer, homeowner and real estate agent investigate comparable market statistics to find anything to justify a better valuation, according to Casey Fleming, a mortgage adviser and author of “The Loan Guide: How to Get the Best Possible Mortgage.”
The team may find that the appraiser missed some comps, such location, homes with a similar style, or square footage sold recently. It is possible the appraiser missed a recently rehabilitated home that looks great now, but was trashed in the previous sale, causing a low valuation.
After the additional comparables are considered, the loan officer writes the appeal and sends it to the appraiser, who may offer a new appraisal. All parties may negotiate until the valuation is acceptable to everyone. While there is a chance an appraiser will adjust their value, it is difficult to obtain, and can be a lengthy process.
2. You can request a second appraisal
If the appraised value is lower than the contract price, a second appraisal could be requested. The first appraisal is included in the closing costs; additional appraisals, are usually the seller’s obligation. Depending on the area, costs range from about $400 to $1,000.
3. The seller may negotiate with you
Try asking the seller to reduce the price or split the difference. If you both are willing to budge a little, you may find the middle ground you need to get the home of your dreams. Just remember, the seller has no obligation to lower the price, but they may be willing to rather than lose the sale. However, if he has other offers, he will be less likely to negotiate with you.
If the Federal Housing Administration is involved, sellers may be willing to cooperate, or they could wait for a buyer with a different loan type.
4. Walk away
Not typically an option most people want to consider, especially if the house feels like the right home, but you can simply walk away. If you take the low appraisal, it could cost you money when you decide to sell down the road. You will be back to square one but if your contract has an appraisal continency, just walk away with your deposit.
Contact our Destination Maui Realty team to help you negotiate the home-buying or selling process. We are most familiar with the comps that could impact your appraisal.