Appraisals In a Seller’s Market
In a hot seller’s market like we have right now, buyers are competing for homes and driving up sale prices. That’s great for a seller, until the appraisal. Occasionally in an inflating market the recent comparable sale values just aren’t there to support the contract price of a property. Recently we’ve seen several appraisals come in below the accepted offer price.
If there is no appraisal contingency and a buyer has strong financing, it’s not a problem. The buyer can simply make up the difference in value and their lender will only lend based on the appraised value. In other words, if a buyer had planned a 20% ($40,000) down payment on a $200,000 house, but the house only appraised for $195,000, the lender basically considers that the buyers only have a $35,000 down payment because the other $5,000 makes up the difference between appraised value and purchase price.
If there is an appraisal contingency, the buyer has the right to cancel the contract if the seller will not adjust their price to the appraised value. However, in most cases the buyer really wants the house and the seller really wants top dollar, leading to a re-negotiation. Most often the buyer and the seller will negotiate to some middle ground to make the deal come together. Although, the buyer has to be capable of making their financing work at the new agreed upon price.
If you find yourself in a low appraisal situation, it’s not necessarily the end of the deal. You just need to consult your real estate professionals to help you work through it. Usually a deal can still be worked out, it just takes some thought, some negotiation, and the experience of a good agent and lender to help figure out an agreeable solution.