What to do when an appraisal comes back lower than the negotiated price.
Banks require appraisals to verify that a home’s sale price is supported by its market value and won’t issue a loan for more than the appraised value. A low valuation can cause quite the dilemma when an appraisal comes in below the negotiated price. Of the real estate agents surveyed by the National Association of Realtors, 9 percent said a contract was delayed because an appraisal came in below the negotiated price, 15 percent said a contract was renegotiated to a lower price, and 11 percent said a contract was canceled as a result of a low valuation. Don’t let a low valuation ruin your deal. There are several things buyers and sellers can do if an appraisal is lower than the price originally agreed upon.
Tips for Sellers
- Double check the appraisal report. Nobody is perfect. Peruse the report for errors that may have resulted in the low valuation. Did the appraiser record the correct square footage? Are all the rooms listed along with upgrades?
- Ask for a redo. If you think the valuation doesn’t properly reflect your property, ask the appraiser to reconsider their decision. If the appraiser used short sales and foreclosures as comparisons, these low prices could have hurt the home’s appraisal.
- Get a second opinion. This is highly suggested if the appraiser was from out-of-town and therefore unfamiliar with the true market.
- Pay for your own appraisal. If it is higher, you can use it to contest the first.
Tips for Buyers
- Renegotiate the price. It’s necessary when you don’t have the cash to cover the difference between what the bank will lend and the negotiated price.
- Ask for another appraisal. If the seller won’t agree to a lower price, ask the appraiser not to include any foreclosures or short sales when comparing properties.
- Last resort: cancel the contract. Cancel if the contract was contingent upon your ability to secure a mortgage and you’re not able to receive a mortgage for the agreed-upon percentage of the purchase price because of the low valuation.
Buying and selling homes is tricky business. Handle low appraisals with ease by following these tips.
The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.