What Happens When the Appraisal Comes in Under the Sales Price?

Buying or selling a home can be an exciting journey, but sometimes unexpected challenges arise. One such hurdle is when a property's appraisal comes in lower than the agreed-upon sales price. While this situation can feel discouraging, it's important to remember there are options to navigate this scenario and keep the transaction moving forward. Here, we’ll break down why this happens and explore solutions for both buyers and sellers.

Why Does This Happen?

An appraisal is an unbiased professional assessment of a property’s value, conducted by a licensed appraiser. The purpose is to ensure the home’s value aligns with the price the buyer and seller have agreed upon, providing a layer of protection for both the buyer and the lender.

Several factors can lead to a lower-than-expected appraisal:

• Market Conditions: In a shifting or cooling market, recent sales (comparables) might not support the agreed price.

• Overpricing: The seller may have listed the home above its true market value.

• Condition of the Property: Issues discovered during the appraisal, such as deferred maintenance or outdated features, may negatively impact the value.

• Inaccurate Comparables: The appraiser may not have had access to or used the most relevant recent sales.

What Are Your Options?

When an appraisal comes in low, there are several paths to consider:

1. Renegotiate the Price

Buyers and sellers can return to the negotiation table and agree on a new purchase price that matches the appraisal value. While this might not be the ideal outcome for the seller, it can keep the deal alive and prevent the buyer from walking away.

2. Appeal the Appraisal

Buyers or sellers can challenge the appraisal by providing additional comparable sales or pointing out inaccuracies in the appraiser’s report. This is known as a "reconsideration of value." While not always successful, it’s worth pursuing if there’s strong evidence to support a higher valuation.

3. Cover the Difference in Cash

If the buyer is able and willing, they can choose to pay the difference between the appraised value and the agreed-upon sales price out of pocket. This option avoids altering the purchase price but requires financial flexibility on the buyer’s part.

4. Split the Difference

Both parties can agree to share the financial burden by meeting somewhere in the middle. For example, the seller might lower the price partially, and the buyer can cover the remaining gap in cash.

5. Walk Away

If no agreement can be reached, and the buyer’s financing is contingent upon the appraisal, the buyer may be able to exit the contract without penalty. While this isn’t ideal for either party, it’s a possible outcome to consider.

6. Get a Second Appraisal

In some cases, requesting a second appraisal may yield a different result. However, this option usually requires approval from the lender and may involve additional costs.

How to Prevent This Situation

While it’s impossible to guarantee an appraisal will align with the sales price, there are proactive steps to minimize the risk:

• For Sellers: Price the home accurately by working with an experienced real estate agent who understands local market conditions.

• For Buyers: Include an appraisal contingency in your offer to protect yourself if the appraisal comes in low.

• For Both Parties: Ensure the home is in good condition and well-presented, which can positively influence the appraiser’s evaluation.

Final Thoughts

An appraisal coming in under the sales price doesn’t have to mean the end of the road for your transaction. By understanding your options and working collaboratively with your agent and the other party, you can often find a solution that satisfies everyone involved. Communication, flexibility, and a willingness to negotiate are key to navigating this common challenge.