Deal With a Low Home Appraisal

In a competitive real estate market, a home being sold may enter into a multiple offer situation which could potentially raise the purchase price above the comparable sales in the area. In a situation like this, it is possible that the home appraisal for the buyer’s mortgage lender will come in lower than the purchase price. In a real estate market that favors buyers, sellers can also face a home appraisal that is lower than what they paid for the home if they bought the house at the peak of the market

Why Do Low Appraisals Happen?

Here are a few reasons why a home appraisals may come in low:

Inflated home price because of multiple offers.

Declining real estate market due to a large inventory of homes and not enough buyers.

The seller has overpriced the home.

The real estate appraiser lacks experience and doesn’t understand the influences on value.

The real estate appraiser incorrectly selected his comparable sales for his report which may have resulted in a lower home value than what should have been assessed.

Solutions for Low Appraisals

If a low home appraisal is threatening to sink your sale, purchase or refinance, stay calm, here are a couple solutions:

The buyer can pay you the difference between the purchase price you agreed upon and the appraised price in cash, you can sell the property for the appraised value and get the difference from the agreed upon higher price in a lump sum cash payment if the buyer is able to do so.

If you are the seller of the home you do have the option of lowering the selling price. If you don’t you will run the risk of every buyer running into the same problem and not being able to get a mortgage because of a low appraisal.

The seller can offer to carry a second mortgage for the difference.

If the buyer feels they absolutely have to have your home and you are not willing to lower the selling price and the buyer cannot come up with a lump sum to pay you (as mentioned in option 1) you could accept having them make payments to you over a period of time instead of the lump sum.