Buying a home is an emotional journey filled with excitement and anticipation. However, when financing comes into play, the process can take unexpected turns, and one such twist often involves the crucial step of home appraisal. The value assigned by the appraiser can significantly impact the course of the transaction, and if the appraisal comes in lower than expected, it can be a tough pill to swallow.
The Appraiser’s Unbiased Verdict
When seeking a mortgage, a homebuyer requires an appraisal to assure the lending institution that they are not extending credit beyond the fair market value of the property. An appraiser steps into the scene, providing an unbiased evaluation of the home’s value, considering various factors such as construction details, zoning, and neighborhood amenities.
Dealing with Frustration
Discovering that the appraisal falls short of your offer can be frustrating and, at times, devastating. It’s not an uncommon scenario, and one of the primary reasons for contingency issues in real estate transactions often revolves around the appraisal process.
Unveiling the Appraisal Process
The appraisal delves into the property’s condition, requiring the appraiser to be certified in the state where they operate. The thorough examination includes aspects like the year of construction, neighborhood zoning, foundation type, and available utilities. The resulting report, submitted to the lender, typically takes about a week, though VA and FHA loans may involve a more detailed and prolonged appraisal process.
Facing a Low Appraisal: What to Do?
1. Cover the Difference in Cash
If the appraisal falls short, a buyer can bridge the gap by using cash to make up for the disparity between the appraised value and the sale price. Alternatively, a buyer might contribute to covering some closing costs on the seller’s end.
2. Price Reduction
Simplifying the situation, reducing the price can be a viable solution if the property was initially priced too high. This benefits both the lender and the buyer, ensuring a smoother transaction.
3. Dispute the Appraisal
While challenging, disputing an initial appraisal is an option. Sellers can ask for a copy of the appraisal report, review it for potential mistakes, and then appeal or request a second appraisal. While only the lender can technically demand another appraisal, it’s worth exploring.
4. Get Comps
Real estate agents can compile a list of comparable properties (comps) that justify the agreed-upon sale price. Presenting this to an underwriter may help them reconsider the appraisal’s accuracy.
5. Negotiate a Middle Ground
In certain cases, negotiating a middle ground may be the most practical solution. Sellers may agree to contribute towards the difference between the sale price and the appraisal, fostering a compromise that benefits both parties.
Bottom Line
In the face of a low appraisal, emotions may run high, but exploring these options and working closely with our knowledgeable team can help navigate the challenges. By finding the right solution, the path to homeownership can still be a reality.