Making an offer on a home for sale is an exciting time for prospective buyers, but it can also be stressful. Any number of challenges or obstacles can arise in the home purchase process that may delay or impede a closing altogether. One issue that might concern a buyer is having a home appraisal come in lower than the price that he or she has offered on a home.
What happens then? Should (and can) a buyer simply walk away? Are there options available to rectify the situation? Why does it matter that the buyer’s offer is higher than the appraisal value of the home? By the end of this post, you’ll know the answers to all of these questions.
When issuing mortgage loans, lenders pay attention to appraisals
A bank or lending institution always wants to protect its investments. With regard to home-sale transactions, lenders want to make sure that a borrower is not overpaying on a house. Optimally, a lender wants a home to be appraised at a greater value than the amount of the loan being issued so that losses may be recovered if the borrower defaults on the loan.
A buyer is not obligated to go through with a purchase if appraisal is low
If a prospective buyer has offered an amount for a home that exceeds the appraised value of the home, he or she may decide to remove the offer from the table. In other words, if you’re the buyer in the situation, you are free to walk away from the deal. If you really love the home in question and still want to purchase it, however, you may have several other options available, which are highlighted in the next section.
Use a low appraisal as a bargaining tool
The seller wants to sell the home. The buyer wants to buy it. A low appraisal is keeping both parties from accomplishing their goals. If both sides are determined to strike a deal, then a low appraisal situation can be seen as an opportunity to renegotiate the offer. A seller might be willing to accept a lower offer when there is documentation stating that the list price is greater than the worth of the home in the current real estate market.
If a buyer has cash on hand to add to the deal, he or she may be able to convince a lender to go ahead with the mortgage loan, making up the balance with out-of-pocket money. A buyer may also challenge the appraisal, especially if he or she has comparable sales information to defend the idea that the home is worth more than the appraiser says that it is. Finally, a buyer may request a second appraisal with a different company or may consider trying to find a new lender.
A low appraisal doesn’t automatically mean a no-go on a home sale
Receiving an appraisal that is lower than the offer that has been submitted on a home for sale is disappointing to both the seller and buyer. However, it doesn’t necessarily have to be the end of the line. There are often numerous options available to help resolve such issues, and when sellers and buyers are working alongside experienced real estate agents,they can receive guidance and recommendations that help everyone involved accomplish their real estate goals.