What if Your Appraisal Comes in Short?

If you’re buying a home and the appraisal comes in lower than the sales price, what should you do? Here are your four options.

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Today I’d like to answer a question that I get frequently from clients, which is, “What should I do if the appraisal on the home I’m buying comes in short?” Obviously, this is a situation that we don’t want to happen, but if it does, you have four options:

1. You can cancel the contract. Most contracts today are written in a way that if the house does not appraise for the sales price, the buyer can terminate the contract and get their earnest money back. This isn’t the preferred scenario for a lot of buyers, but it does occasionally happen.

2. The parties involved could put up more cash. For example, if the house has a $100,000 sales price and the house appraises for $95,000, often the lender may not be willing or able to make up that $5,000 difference. In these circumstances, that difference needs to be made up by the buyer and the seller. The seller could offer to lower their sales price, the buyer could put up more money, or the two could compromise. As long as the difference is made up, the sale can continue.

If the appraisal comes in low, you have four options.

3. You can change the terms of your loan. Depending on the loan that you’re trying to get and the lenders you’re visiting with, this may or may not be a possibility. However, in certain circumstances, it may make sense to take out a second mortgage on the house you’re buying. By having two liens on the property, you can sometimes satisfy the concerns that lenders would have in the event that the property does not appraise. Again, your ability to do this will depend on the lender and property type you’re dealing with, so I would encourage all buyers to speak with their lender about this option.

4. You can challenge the appraisal. This is probably the option that we go with most often. Appraising a house is not an exact science; you’ll never be able to find homes that are exactly the same as the home you’re buying or selling in comparable sales. For this reason, when an appraiser is looking at comparable properties, they’re putting forth their own subjective opinion to arrive at a value for the property. If the appraisal comes back low, what I would do as an agent is reach out to the appraiser and share facts with them that they may or may not have considered when determining the value of the property in an effort to get them to raise their value back up to our sales price. I’d say this strategy works about 60% of the time.

If you have any other questions about your options in the event of a low appraisal or any other questions about buying or selling a home in our area, feel free to reach out to me by phone or email. I’d be happy to help you!