It’s no secret that there has been a listing shortage since the start of the virus-that-must-not-be-named. Currently, listings are flying off the market and buyers are giving up a lot of privileges, like home inspections. This is where an appraisal can help you, the buyer, the most.
Curious about the future of the housing market? Check out my post on the outlook for housing in 2022.
What is an appraisal?
A home appraisal is a professional estimate of the value of a home, and they are done when selling a home or refinancing a mortgage. Appraisals base the value of the home on how much similar properties have recently sold for, current market trends, and the features of the home itself.
How does an appraisal benefit the buyer?
Your lender requires you to get an appraisal if you’re borrowing, and while it is true that sellers want a high price for their home, buyers also benefit from having an appraisal done.
The most important benefit of an appraisal is knowing the home’s true value, so you won’t be paying more than the home is worth. Knowing the value of the home can also give you more negotiating power.
Need to know more about all the details of home appraisals? Investopedia has a great article on the matter.
What should you do if your appraisal comes in too low?
There are two possible outcomes of the appraisal. Either the home will be valued around the same price (or higher than) what you’ve agreed to pay and the closing can continue, or the value comes back too low. You might think that having an appraisal come in for a lot less than you’ve agreed to pay is a good thing, but you may run into problems with the seller, or your lender. The seller may not want to lower the price, and your lender will refuse to approve and provide the funds.
Here are some of your options to move forward if your appraisal comes in at a lower value than the contract price.
Renegotiate and compromise
One route to explore is renegotiation. You could ask the seller to meet the appraisal price, but in a seller’s market, they will likely not be willing to come down. Instead, you could offer to split the difference with the seller.
Having a problem with a seller? Have a look at my post on how to negotiate with difficult sellers.
Rebuttal
If you really want the house, your agent can send a rebuttal letter to the lender’s appraiser. Make sure you provide your agent with a written confirmation that you’d like to pay the higher price. There is no guarantee that your lender will accept the rebuttal, and if they don’t, you have the option to pay the difference.
Your agent can also prepare an appraisal packet, which is a collection of evidence that helps support the contract price.
Walk away
What is probably your least ideal solution is to just walk away from the sale. It will feel like you’ve wasted a lot of time and money, but if there’s no way to negotiate with the seller or your lender, then the best choice for your wallet (and sanity) is to back out of the purchase, and look for another.
Are you looking for a new home? I’m licensed to buy and sell properties in DC, MD, VA, and WV. Message me at sian@sianpugh.com to learn more about how I can get you into a new home.
My cousin has finally found her dream home and is ready to purchase it, but she wants to make sure there are no hidden problems. Your information on how you can renegotiate the price after getting a property appraisal, and that you could even work with the seller to split the difference. I’ll talk to my cousin about these options so she can hire an appraisal service within the next week to ensure she moves quickly before someone else purchases the house.