What Can I Do About A Low Home Appraisal?
In today’s “Ask the Real Estate Agent” question, I am answering a topic that we’ve got from our sellers about what to do if an appraisal comes in low. The situation would be that you’re selling your home, you get an offer, they have an appraisal contingency, and then you get a low appraisal. Sounds like a nightmare, right? But there is no need to worry, it’s not the end of the world. It doesn’t mean your transaction is not going to go through, you simply have a little bit more work to do.
3 Ways to Beat a Low Appraisal
The first thing to realize is that even if the appraisal comes in low and the buyer has an appraisal contingency, you do not have to drop the price. You always have the option to hold firm. The buyer is able to get out of the contract at this point, but we typically don’t see that happen. There are a couple of different possibilities for how it could play out from this point. One is if you hold firm, they might come up to that price and either get a different type of loan or pay the extra difference in cash. This is the most direct and convenient scenario.
Another scenario is you can ask them to get a second appraisal or to get an appraisal from a different bank. If it’s a VA or FHA loan situation, that won’t work because the appraisal is attached to the house. But if it’s not an FHA or VA loan, you can request that they get a different appraisal. They, of course, don’t have to, but you can always ask. Remember – it does not hurt to exhaust all options if that’s going to save you some money.
You can negotiate with them as well. Let’s say the appraisal comes in $10,000 too low. By this time, the buyer is two to three weeks into the transaction and they’re probably going to close in another two to three weeks. They’ve already set things in motion, either with the sale of their home or their current lease and mentally they are in the mindset that they will be owning your home. They’ve got some attachment to this house since they already previously agreed to the price before the appraisal came in too low. It’s not likely that they would completely just walk away, so try to get them to come up as close to that $10,000 as possible.
If doesn’t look like they’re going to come up to the agreed upon sales price, you can always negotiate somewhere in the middle in my experience. One possibility is you go back to them and say, “Look, I’m not going to come down 10,000. I’ll come down, 3,000 or 4,000” and see how much movement you can get there. * You should always attempt to negotiate if you’re not comfortable going down to the appraised value.
Remember, you’re going to have more leverage in this situation depending on how long your home is on the market and what kind of interest it had. If your home had only been on the market for a week and you had other offers, then you’re going to have more leverage over them. In Arlington, we currently are in a seller’s market so here you do have a little extra negotiating power from the get-go.
Strategy to Prevent a Low Appraisal
If your home is on the market for only a short amount of time and you do have multiple interested parties, or better yet multiple offers, you’d want to try to get them to waive the appraisal up front. If you can’t do that and the best offer that you pick is one that does have an appraisal contingency, it’s a good idea to get one of the other offers as a backup offer. In that event, if the first contract falls out, the backup offer becomes the primary offer once you notify them of that. And that’s going to give you more leverage with your first buyer if the appraisal comes in low. You just tell them, “Hey, I’ve got a backup offer. I know the appraisal came in low, but you’re going to have to cover the difference.” This will give you a ton more leverage.
Your Last Resort
Finally, if all else fails, you can always come down to the appraised value if that is something that best meets your needs. There are unlimited reasons of why someone may need to sell their home, so if you need out immediately and there hasn’t been much interest on your property, this may be your best option. Again, depending on your situation, do try and exercise all other options presented here first.
If you have any other questions on what to do in this situation, we’d love to help you out. Also if you have any other questions for our next “Ask the Agent” segment, please let us know at [email protected].