Is Your Dream Home Appraising For Less Than The Asking Price? What Are Your Options?

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First-Time Seller Tips: What You Should Know In Advance

When I put my house on the market, nobody told me about the flurry of real estate agent meetings, showings, open houses, and staging appointments. When you add the paperwork, I was overwhelmed. After the process was over and I left the closing, I decided to create a website that focused on all of those things that I didn't know I'd have to do. My goal for this site is to make sure that other first-time sellers have a resource to learn what they can expect from the sale and closing process. I hope that the posts here help you prepare for your first sale with the confidence of an old pro.


Is Your Dream Home Appraising For Less Than The Asking Price? What Are Your Options?

20 December 2016
 Categories: , Blog

If you've been in the house-hunting process for months, you may be ecstatic to finally have found your dream home -- only to have these dreams crushed when the appraisal amount for the real estate property comes in well below the asking price. What are your options if the sellers are unable (or unwilling) to lower the sale price to the appraisal value? Read on to learn more about the potential outcomes of such a situation.

What are your options if an appraisal amount comes in low?

Although from a buyer's perspective you may assume a low appraisal only improves your odds of saving money on your home purchase, it can also throw quite a wrench in the financing process. Most -- if not all -- lenders are unwilling to lend more than a home is worth, and unless you're able to increase your down payment or take other steps to lower the bank's risk, you may find yourself unable to secure financing for the full asking price of the home. 

One option is to contest the appraisal or order a new appraisal. In some cases, you may find that the appraisal amount is artificially low as it has failed to take certain factors into account or has relied on incorrect information -- for example, miscalculating the square footage or reducing the number of bedrooms or bathrooms listed. In other cases, the homes used as "comps" for the appraisal may not be the best points of comparison due to their size, location, or condition. Having another appraisal that comes in at or above the purchase price may give your bank the satisfaction it needs to be willing to lend the asking price. 

How can you decide how to proceed after receiving a low appraisal amount? 

How you'd like to proceed depends on a few factors -- your budget, the amount (and accessibility) of financial resources that can be put toward this home (e.g., a larger down payment), and how important it is for you to obtain this home. 

The right choice may include both financial and emotional considerations, but in most cases, it's not a good idea to overpay for a home, even if you have the extra cash to bring to the table. Unless the appraisal value is objectively wrong (by being based on incorrect data), a seller's inability or unwillingness to drop the asking price to meet the appraisal amount could mean the seller already owes more on the home than it is worth.

On the other hand, the ability to negotiate the asking price down (or to order a new appraisal) may make one of these options more palatable.