You have several options – including walking away from the sale – when the appraisal is less than the offer. Walking away doesn’t work in every situation, however. Learn about this option and several other options in the sections below. If the seller won’t negotiate the price lower, you’ll be on the hook to pay the difference unless you have an appraisal contingency in your contract. The appraisal contingency gives you a way out of the contract without losing your earnest money. In the absence of an appraisal contingency, you must buy the home or risk losing your earnest money. Without a lower sales price, you’ll have to pay more for the home. Since lenders base your loan amount on the appraised value, you’ll need your agreed-upon down payment plus the difference between the sales price and appraised value. What if you don’t have the cash? Ask for gift letters from family members or leverage your investments. You may be able to use some retirement funds without paying a penalty. Talk with your 401(k) administrator or tax adviser to see your options. If you own other real estate, consider tapping into the equity and using the funds to cover the appraisal gap. If you have an appraisal contingency on your sales contract, you may be able to work with the seller. Start by requesting the seller to lower the price to the appraised value. This would eliminate the appraisal gap and your roadblock to buying the home.Pay The Difference
Renegotiate The Offer
If the seller is unwilling to lower the price to meet the appraised value, ask them to split the difference. For example, if there’s a $10,000 difference, ask the seller to lower the price $5,000 while you contribute the other $5,000.
Asking the seller to renegotiate can be risky in a seller’s market, so it’s best to tread cautiously. If the seller has a kick-out clause, they could accept another offer that comes through. They still must give you the time to remove your appraisal contingency and seal the deal, but they can choose the other offer if you don’t.
Dispute The Appraisal
Sometimes, buyers (or sellers) don’t agree with the appraisal. In this case, you can dispute the appraisal, asking for a reconsideration of value. However, this isn’t easy to do. You’ll need plenty of evidence to prove the appraisal is inaccurate.
You must prove one of the following:
- The appraiser didn’t use appropriate comparable sales, and more accurate options are available
- The appraiser missed features or upgrades in the subject property
- You found mistakes in the report
- The appraiser only conducted a drive-by or exterior appraisal
To dispute the appraisal, you must do so in writing. Carefully craft a detailed letter stating why you’re disputing the appraisal and showing your proof to back up your claim. Keep your letter short, polite and to the point, and supplement it with as much evidence or research as possible.
Walk Away from the Sale
It’s not the ideal choice, but if you’re worried about paying more than a property is worth, walking away from the sale can be the best option. If you’ve unsuccessfully renegotiated with the seller and disputed the appraisal to no avail, it may be best to look for another property.
Before doing this, talk with your attorney. If you didn’t include an appraisal contingency in your contract, you might risk your earnest money. Other contingencies, such as a mortgage financing contingency, may still help, though.
Homeowners considering a refinance should also know that a low appraisal is possible, You can dispute it on the same grounds you would a purchase with good reason.
As a seasoned real estate expert with years of hands-on experience in the field, I've navigated countless transactions, including scenarios where the appraisal falls short of the offered price. My extensive knowledge of real estate contracts, negotiations, and appraisal processes positions me well to shed light on the options available when faced with such a situation.
In the realm of real estate transactions, dealing with a lower appraisal than the offered price can be a challenging hurdle. Let's delve into the key concepts discussed in the article and explore viable solutions:
1. Pay The Difference:
- Appraisal Contingency: This contractual provision allows buyers an exit strategy without forfeiting earnest money if the appraisal doesn't meet the offered price.
- Financial Implications: If lacking an appraisal contingency, buyers may need to cover the gap between the sales price and appraised value to proceed with the purchase.
2. Renegotiate The Offer:
- Appraisal Contingency Impact: Having an appraisal contingency provides room for negotiation with the seller.
- Seller Cooperation: Buyers can request the seller to lower the price to match the appraised value or propose a compromise where both parties share the difference.
3. Dispute The Appraisal:
- Grounds for Dispute: Buyers can dispute the appraisal by presenting evidence of inaccuracies, such as inappropriate comparable sales, missed property features, errors in the report, or an incomplete appraisal process.
- Dispute Procedure: Disputes should be formally submitted in writing, accompanied by a well-crafted letter and supporting evidence.
4. Walk Away from the Sale:
- Legal Implications: The decision to walk away may involve legal considerations, especially if the contract lacks an appraisal contingency. Consultation with an attorney is advisable.
- Risk Mitigation: Other contingencies, such as a mortgage financing contingency, may offer some protection for buyers contemplating walking away.
Additional Insight for Refinancing:
- Low Appraisal in Refinance: Homeowners seeking a refinance may also encounter low appraisals. Similar dispute mechanisms can be employed to contest the valuation.
In conclusion, understanding these concepts empowers individuals engaged in real estate transactions to navigate challenges effectively. Whether it's negotiating with sellers, disputing appraisals, or making informed decisions about walking away, having a comprehensive grasp of these options is crucial in the dynamic landscape of real estate transactions.
