What to Do When Your Home Doesn’t Appraise for the Sale Price | Expert Real Estate Guide

What to Do When Your Home Doesn’t Appraise for the Sale Price

One of the more nerve-wracking parts of a real estate transaction is the home appraisal. For both buyers and sellers, a low appraisal can throw a wrench into the sale process, potentially derailing the deal entirely. But don’t panic—there are several ways to handle a low appraisal, whether you’re buying or selling a home.

This guide will explain why appraisals matter, what to do if the appraised value falls short of the sale price, and how to navigate this tricky situation.

Why Appraisals Are Important

A home appraisal is an evaluation of a property’s market value conducted by a licensed appraiser. Mortgage lenders require appraisals to ensure that the property is worth the amount being financed. If the appraisal comes in lower than the agreed-upon sale price, the lender may not approve the full loan amount, leaving a gap that needs to be addressed.

For example, if you’ve agreed to purchase a home for $400,000, but the appraisal determines its value is only $380,000, the lender will only finance up to $380,000. That $20,000 shortfall needs to be resolved before the deal can move forward.

What Causes a Low Appraisal?

There are several reasons why a home might appraise for less than the sale price, including:

• Market Changes: Fluctuations in the local market may have altered property values since the price was agreed upon.
• Overpricing: The seller may have priced the home higher than its actual market value.
• Lack of Comparable Sales: If there are few recent comparable home sales (or “comps”) in the area, the appraiser may struggle to justify the sale price.
• Property Condition: Repairs, outdated features, or deferred maintenance can negatively impact the appraisal value.

What to Do When a Home Doesn’t Appraise for the Sale Price

If your home doesn’t appraise for the agreed-upon sale price, here are your options:

For Buyers

1. Negotiate with the Seller

   • Ask the seller to lower the sale price to match the appraised value. While this might not always work, sellers are often motivated to keep the deal moving and may agree to a price reduction.

2. Cover the Gap

   • If you’re committed to the property, you can pay the difference between the appraised value and the sale price out of pocket. For example, in the $400,000 sale with a $380,000 appraisal, you’d bring the additional $20,000 to closing. However, make sure this aligns with your financial goals and budget.

3. Split the Difference

   • Negotiate a compromise where both you and the seller cover part of the difference. This solution can work if both parties are eager to close the deal but unwilling to bear the full financial burden.

4. Contest the Appraisal

   • If you believe the appraisal is inaccurate, you can request a reconsideration of value. This involves providing additional comps or evidence to support a higher valuation. Your agent can help gather this information and present it to the appraiser.

5. Walk Away

   • If no agreement can be reached and you don’t have the resources to cover the gap, you may need to walk away from the deal. Ensure your purchase agreement includes a financing contingency so you can exit without penalty.

For Sellers

1. Lower the Sale Price

   • While it may not be your first choice, reducing the sale price to the appraised value can help save the deal. This approach is often the quickest way to move forward and avoid putting the home back on the market.

2. Offer to Split the Difference

   • If the buyer is willing to pay part of the difference, consider sharing the financial burden to keep the sale on track.

3. Request a Second Appraisal

   • If you believe the original appraisal was inaccurate, you can work with the buyer to request a second appraisal. Be prepared to pay for this additional evaluation, and make sure to provide any information that supports your desired value.

4. Provide Additional Comps

   • Work with your real estate agent to gather more recent or relevant comparable sales that may justify the sale price. Present these to the appraiser or lender for reconsideration.

5. Relist the Property

   • If the buyer can’t or won’t move forward, you may need to put the home back on the market. While this can be frustrating, you might attract another buyer who is willing to pay the full price or who doesn’t require financing.

Tips for Avoiding Appraisal Issues

1. Set a Realistic Price
   Sellers should work closely with their real estate agent to set a competitive price based on recent comps and market trends. Pricing a home too high increases the risk of a low appraisal.

2. Prepare the Property
   Make necessary repairs and improvements before listing the home to maximize its appraised value. Simple upgrades, like fresh paint or landscaping, can make a difference.

3. Provide Documentation
   If your home has unique features or recent upgrades, provide documentation to the appraiser. Receipts for renovations or a detailed list of features can help justify the sale price.

4. Work with Experienced Professionals
   Whether you’re buying or selling, having a knowledgeable real estate agent and lender on your side can make all the difference. They can help navigate appraisal challenges and advocate for your interests.

Final Thoughts

A low appraisal doesn’t have to mean the end of your real estate transaction. By understanding your options and working with experienced professionals, buyers and sellers can find creative solutions to overcome appraisal gaps and move forward. Whether it’s renegotiating the price, contesting the appraisal, or finding a financial compromise, there’s always a path to keep the deal on track.

Need help navigating the complexities of appraisals and real estate transactions? Contact Sold Realty Group today! Our team has the expertise to guide you through every step of the buying or selling process, ensuring you’re prepared for any challenges that come your way.