What to Do If a Home Appraises for Less than What You Offered
You finally found what you believed would be your new home, after a long hunt. However, after you made an offer, the evaluation was returned — and it was less than what you offered. When this happens, many soon-to-be homeowners are at a loss for what to do, but don’t worry!
Approximately 8% of home appraisal values go below the asking price owing to (1) market factors at the time you make an offer and/or (2) probable errors by the appraiser doing the evaluation. If the appraisal on the home you want to buy comes in lower than what you offered, keep reading because you still have alternatives!
When the real estate market is hot, there are typically more buyers than sellers. This gives sellers the most bargaining power. In a “seller’s market,” some sellers may overvalue their properties and raise the asking price above the home’s value. The same thing might happen if the neighborhood in which the house is located is in great demand and there is a scarcity of available inventory.
Home appraisals are performed by licensed third-party appraisers. These individuals determine the value of a house based on a variety of variables, including similar sales. Appraisals are subjective and may be based on too little or the wrong information (appraisers are only human, after all).
With so much competition and a seller-friendly market, the seller is unlikely to move on their asking price, regardless of how the appraisal turns out. But it never hurts to inquire.
If there isn’t much competition or the seller believes you’re the perfect bidder for them, you might be able to work out a bargain. Even if the market is hot and the competition is fierce, it may be worthwhile to try to negotiate a lower price before considering alternative possibilities.
In real estate, there’s an old proverb that states a house is worth what a buyer is willing to pay for it, not what an appraiser thinks it’s worth. If you have your heart set on a specific home and the only thing standing in your way is a low appraisal, you may want to consider paying the difference. For example, some purchasers take out the loan given by their lender and then pay the remainder in cash to the seller.
To prevent losing your desired house in today’s cutthroat bidding wars, consider including an assessment gap-covering provision in your offer. This indicates you’ve agreed to pay a portion of the difference between the offer price and the assessed value if one exists. You don’t have to pay anything more if the assessed value is equal to the listed price. However, if the evaluated worth is less, expect to pay more.
Before agreeing to pay more, be sure you’re absolutely confident in the home’s future, even if its valuation doesn’t reflect it right now.
If you believe the appraiser made a mistake, you can contest the assessment and request a new one. But you must make sure that your appeal is based on real facts, or your hopes for a good outcome will be dashed before they even begin.
You can try to switch lenders in this situation, though it may not work for everyone. There’s a potential that the combination of another lender and a new appraiser will place you in a different situation. However, this is far from a panacea and should be considered only if you have a high credit score and a financial history.
As a final resort, you may be able to abandon the dream of purchasing this specific property. Typically, your responsibility to purchase the house is based on the home’s appraised value.
Nobody wants a poor assessment after they’ve already made an offer on a new house. However, this seemingly unfavorable event might help you evaluate the offer in a different way. Whatever path you take, you’ll have a better understanding of the home’s genuine value and will be able to make a more educated choice about whether it’s the right one for you.
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