Armed with this knowledge, the appraiser determines the estimated value of the home. A buyer applying for a loan must have their property appraised. The appraisal is used to determine its value. This is usually done by a bank, often referred to as a mortgage lender.
Afterall, they don’t want to loan more than the house is actually worth.
What if the appraisal is lower than the buyer’s offer?
An appraisal is usually done after the buyer has put in an offer on the house. From there, an appraiser is hired by the lender to determine the property value. It’s important to note at this point the sale is not official. About 10% of deals are canceled because the appraisal was too low, according to Zillow.
Sometimes, houses can sell for more than the asking price because it’s a hot market and many buyers are interested in the property. There is a breaking point, though. The buyer is responsible for covering any costs beyond the stated value.
Other actions can be taken if a house is appraised for less than the offer, Zillow says. The buyer may agree to make up the difference that the bank won’t pay for in cash, allowing the seller to get the down payment that they want, while still obtaining the loan.
The seller could also offer to finance the buyer if they’re convinced their home is worth more than the appraisal. In this case, it’s important to have this deal solidified on paper with a lawyer to protect one’s finances.
But what about a buyer who doesn’t plan on taking out a loan? All-cash buyers who are eager to snatch up a property before anyone else may be less concerned about the appraisal price. This type of buyer knows they’re taking a risk and may be paying more than the house is worth. Since they’re not paying interest to a bank, they may still be willing to make the investment.
Home appraisal contingencies
When negotiating with the seller, contingencies are often added to contracts to protect either party. An important contingency to protect buyers is a home appraisal contingency. This means that if the house is appraised for lower than the offer, the buyer is free to back out of the deal without any repercussions. If the house appraises for higher than the offer, they are also fine.
Appealing a low appraisal price
Sellers don’t come up with a sale price on a house out of nowhere. With the help of a real estate agent, sellers can price their property with the same strategies used by appraisers when determining the value of a house.
So, it might be a surprise to the seller if an appraisal comes in lower than they anticipate. It’s important to review the report the appraiser puts together explaining how they came to this number. Luckily, homebuyers and sellers can ask for a reconsideration of value (ROV) if they disagree with the appraiser’s determination. Requesting an ROV must be done through the appraiser’s client (again, many times this is the bank).
According to the Consumer Financial Protection Bureau, an appraiser’s report should have clear instructions on what a buyer or seller can do to challenge an appraisal. This same agency also works to ensure that bias is never at play when one makes an appraisal.
A less stressful way to sell your house
It’s one thing for an appraiser to decide that your house isn’t worth what the buyer offered. It’s another if you know it’s going to sit on the market for a long time due to its condition. Luckily, Meridian Trust has more than 15 years of experience purchasing all kinds of properties in a range of conditions. This includes houses, townhomes, condos, apartments, multi-family units, manufactured homes, and even vacant land.
No matter what issues arise, Meridian Trust handles it with their team of transaction coordinators, attorneys, and an in-house title company. Our team of experts can help resolve issues with permits, liens, or violations — and we’ll even cover the closing costs for you.
Call Meridian Trust for a free, no-obligation property value analysis: (855) 996-9153.
Note: This guide is for informational purposes only. Meridian Trust does not make any guarantees about the sufficiency of the content in or linked to from this blog post or that it is compliant with current law. The content within this blog post is not a substitute for legal advice or legal services. You should not rely on this information for any purpose without consulting a licensed lawyer in your area.
