Here’s how low appraisals are typically handled in a seller’s market.
In a rapidly appreciating seller’s market, like we’re in right now, it’s very common for an appraisal to come in lower than the agreed-upon purchase price while we’re negotiating an offer. The appraiser’s job is to check the value of the home and make sure that the bank is protected in case of mortgage default.
Keep in mind that a home is ultimately worth what a buyer is willing to pay for it. When we’re negotiating an offer price with these kinds of conditions, the buyer will often offer a price that’s higher than what recent comparable sales have closed for. The appraiser can only use closed sales for their valuations, and in an increasing market like this, it can be hard for them to support a higher price.
What happens when an appraisal comes in below the agreed-upon price? The buyer could make up the difference in cash. The seller could also agree to lower the price. In today’s market, buyers have frequently been waiving appraisal contingencies or offering to pay over the appraised value in cash to secure the home.
“Buyers need to come with a little extra cash in this market.”
As a buyer in this kind of competitive environment, you’ll need to be in a position where you can do that. If you’re planning to put 20% down and have the cash on hand, you might need to change to a 15% or 10% down payment and have the rest of the cash as a buffer to fix a low appraisal. It will change your monthly payment very little. It’s not the right decision for everyone but it is for many.
If you have any questions about low appraisals or the real estate market in general, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.
