What Happens If the Appraisal Comes in Low?

If for whatever reason a home doesn’t appraise, here are each side’s options in how to proceed.
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What happens when a home doesn’t appraise?  
Whether you’re a buyer or a seller, the first order of business is to make sure the appraisal was done correctly. Our local appraisers do a good job, but occasionally we’ll get an out-of-town appraiser who doesn’t know the market or just does a bad job. However, if it’s determined that the appraisal was legitimate, what are each side’s options?

If you’re a homebuyer, as long as you’re still in your appraisal contingency, you have three options:

1. Ask the seller to adjust the price down to the appraised value. If they agree to that, we adjust the price and you buy the house for less than what you thought you were going to.
2. Terminate the contract if the seller doesn’t agree to lower the price.
3. Bring additional cash to closing and purchase the house at a higher price. The lender will only loan on the appraised value or the purchase price—whichever is less. Say you’re under contract for $210,000 and the appraisal comes back at $205,000. On top of your down payment, you’d also have to bring in an additional $5,000 to bridge that gap between $205,000 and $210,000 because your loan will be based off $205,000.

Whether you’re the buyer or the seller, everything is open to negotiation.

If you’re a seller and the buyer is still in their appraisal contingency, you also have three options, but they’re the inverse of what the buyer is facing:

1. Reduce the purchase price down to the appraised price.
2. Refuse to lower the purchase price, in which case the buyer has the option to either walk away or pay extra.
3. Negotiate between the appraised price and the purchase price and end up somewhere in the middle. Remember—everything is open to negotiation.

We work with good, local appraisers and lenders, so most of the time this situation doesn’t happen. If we do have a problem, though, we know how to work through it and resolve the situation for both parties.
If you have any questions about this topic or there is anything I can do for you whether you’re a buyer or a seller, please don’t hesitate to reach out to me. I’d be happy to speak with you.