You found a home you love, negotiated with the seller, and had your offer accepted for $800,000. Then the appraisal comes back at $775,000. Now what?
A low appraisal can be stressful, but it doesn't automatically mean the deal is over. It also doesn't mean the seller has to lower the price. Depending on your purchase agreement, financing, and the circumstances of the transaction, there may be several ways to move forward.
Why does the appraisal matter? When you're buying a home with a mortgage, your lender will typically require an appraisal to help determine the value of the property securing the loan. A licensed or certified appraiser evaluates the home and considers factors such as the home's characteristics and comparable properties. The purchase price and appraised value aren't always the same thing.
In this example, the gap between the $800,000 purchase price and the $775,000 appraised value is $25,000.
What are your options? A low appraisal doesn't automatically kill the deal. Here are some common ones:
1. Renegotiate the purchase price. You can try to renegotiate with the seller. For example, the seller may agree to reduce the price from $800,000 to $775,000. But the seller doesn't have to agree.
2. Meet somewhere in the middle. You and the seller could agree to a new price between the purchase price and the appraised value. Whether either party is willing to do this depends on the circumstances.
3. Move forward at the original purchase price. You may decide to continue with the purchase at $800,000, but a lower appraisal can affect your financing. Depending on the loan, you may need to bring additional cash to cover the difference.
4. Use your appraisal contingency (if applicable). If your purchase agreement includes an appraisal contingency and the contractual requirements are met, you may be able to cancel if the home doesn't appraise at the necessary value and you can't reach an agreement with the seller.
Can you challenge a low appraisal? You may be able to request a reconsideration of value through your lender if there's a legitimate reason to question the appraisal, such as relevant comparable sales or additional information. Your lender can explain their process and whether this is an option.
The key takeaways: a low appraisal doesn't automatically mean the deal is over, and the seller doesn't have to lower the price. There are several options, including renegotiating, bringing additional cash, using an appraisal contingency, or requesting a reconsideration of value. And your specific contract, financing, and deadlines matter.
Buying a home in Orange County? Situations like a low appraisal are one of the reasons it's important to have an experienced real estate agent helping you through the transaction. From negotiating your offer to navigating inspections, appraisals, contingencies, and escrow, I can help you understand what is happening at each stage of the process.