Here are your options if the appraised value of a home doesn’t match the sales price.
How does an appraiser even come up with their value in the first place? Well, they formulate their valuations based on other sales in the area. That’s part of the problem—the appraisal is based on the prices of similar homes that have sold in the past, but in this rising market, home prices are going up. When appraisers look backward, homes were selling for less than what they are today.
So what do you do if the appraisal doesn’t match the sales price of the home? In today’s market, four things can happen:
1. The buyer can ask the seller to change the price of the home to the appraised value. For example, if the buyer goes under contract for $410,000 but the home appraises for $400,000, the seller has the option to change the purchase price to $400,000.
2. The buyer agrees to pay the additional money in cash at closing. The bank will finance the home based on the appraised value of $400,000. That can make a big difference if the buyer puts 5% down (that’s $20,000 for the down payment alone!) If they have to bring an additional $10,000 due to a low appraisal, that could price them out of the house.
3. Both parties can negotiate a purchase price that works for everyone. If the purchase price doesn’t work for the buyer, and the appraised value is too low for the seller, both parties can negotiate to reach a compromise.
4. The buyer and seller can cancel the contract. This isn’t ideal because often the buyer will be left without a place to live. Meanwhile, the seller may be trying to buy another home using the funds from the sale of their current home.
This situation can be complicated, but that’s why we’re here to help you through the process from beginning to end. If you have questions or need any assistance, don’t hesitate to reach out to us. We’d love to help you.
