When Appraisals Fall Short, There Are Options For Homebuyers

November 4, 2014

Posted by in News

As Realtors, we are asked a lot of great questions by buyers. One of the most common is, “What happens if the appraisal comes in lower than the contract price?

Yes, this does happen from time to time and it can be frustrating, but rest assured it’s not necessarily a dead end!

Appraisals can certainly vary depending on the appraiser’s knowledge of the neighborhood and dedication to finding the best comparable properties. That dedication can depend on the lender they work for (note: bigger isn’t always better).

Davidson Realty Agent Mirtha Barzaga has really helpful insights on this topic. “Lenders will not write a mortgage on a home that is worth less than the loan. If a contract is clearly written with an appraisal contingency and an appraisal has come in lower than the contract price the buyer does have options,” she said.

As Mirtha explains, the buyer can:
1. Ask the seller to reduce the contract price to the appraised value
2. Make up the difference in cash
3. Re-negotiate the contract price with the seller to reach a compromised number
4. Request a second appraisal if they believe there is evidence of an incorrect appraisal (appraisals are valid for six months on most government insured loans, so requesting a second appraisal may not help).
5. Cancel the contract if all other options aren’t viable.

When selling prices began to rise post-recession, the industry experienced a lot of issues with appraisals coming in below the contract price. This is because appraisals are based on recent closings. As prices fluctuate, the appraisals constantly remain behind the trend.

We’re not seeing this as much of a problem now, but can still be seen in neighborhoods where new construction prices are higher than existing sales. If you have any burning real estate questions, give us a call today at (904) 940-5000.

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