The path to homeownership is filled with many hurdles and pitfalls. It is not enough to find your dream home and count the days to your closing. Even for the most qualified buyer there are several items that can potentially derail your closing. Fortunately, with a professional real estate agent on your side you can quickly deal with whatever comes your way.
One of the first steps after your offer is accepted is ordering an appraisal on the property. In a perfect world the appraised value will match the purchase price and there will be no glaring property defects. Matching the value is the norm but there are times when the appraisal will come in low. When this happens, it does not mean the deal is dead and you will lose your dream home. There are a few things you and your real estate agent can do to keep the deal alive. Here are three actions to take if your appraisal comes in low.
Contest Value.Value of anything is based on what someone is willing to pay for it. This is one of the reasons that having a low appraisal is really the exception rather than the norm. The appraiser has a copy of the contract and knows the purchase price. That being said, they also have a responsibility to the lender to make an accurate and honest estimate of the value. There can be times when they simply do not see the value the same way you, as a buyer, does. When this happens the first thing you and your real estate agent will do is contest the value. In a market with robust sales there should be a handful of comparable sales and current listings that support your offer. In an ironic twist you spend weeks looking to get the lowest possible price and now your real estate agent is looking for comps to support a higher value. Sending the appraiser new comps is a bit of a hail Mary attempt to get them to change their value but if they aren’t familiar with the market this may just work.
New Appraisal.The average cost of a single-family appraisal is somewhere around $450. In the grand scheme of things this is a small cost to pay during the purchase process but a good amount of money nonetheless. The next thing you should do to fight a low appraisal is to order a new one. It is possible that a fresh set of eyes may see things a different way. The downside is that you are spending for a new appraisal without a guarantee it will work. You are generally better off fighting the existing value but if the appraiser is non-responsive this may be your next best option.
Renegotiate. As much as a low appraisal throws a monkey wrench in your purchase it also gives you some negotiation leverage. You have an unbiased appraiser giving a value that is under the purchase price. Your real estate agent can use this to get a price reduction that matches the appraisal. The seller may not want to risk this happening again on a future deal and may see this as an eye opener. They wont like the fact that the buyer agreed to a higher price, but they should know that they deal is in gridlock unless they make some concessions.
If you really love the property and are convinced that the appraised value is simply off, you can still move forward with the purchase. You would just have to bring the difference between the appraisal and the purchase price to the closing. In some cases, this can be just a few bucks but others it will be thousands. Dealing with a low value is one of the times when you are glad you have a quality real estate agent on your side that knows what they are doing.