When Appraisal is Lower than Contract Price: What to Do?
Buying or selling a property can be one of the most stressful experiences in a person`s life. Even more so when the appraisal report comes back lower than the contract price. This is a common scenario in real estate transactions, and it can cause a lot of confusion and frustration for both parties involved. However, there are a few things that can be done to resolve the issue.
What is an Appraisal?
An appraisal is an estimate of a property`s value, usually conducted by a licensed appraiser. It is an important part of the home buying process because it helps the lender determine how much they are willing to lend to the buyer. The appraisal takes into account various factors such as the location, size, condition, and age of the property, as well as recent sales of comparable properties.
Why is the Appraisal Important?
The appraisal is important because it determines the maximum amount of money the lender is willing to lend to the buyer. If the appraisal comes in lower than the contract price, it means that the lender will not lend the full amount of money the buyer needs to complete the purchase. This can cause a number of issues, such as the buyer having to come up with additional funds to make up the difference or the seller having to lower the price of the property.
What Can Be Done When the Appraisal is Lower than the Contract Price?
1. Negotiate with the Seller
The first option is to negotiate with the seller. The seller may agree to lower the price of the property to match the appraised value. This may be a difficult conversation to have, but it is important to remember that the seller may also be motivated to sell the property and may be willing to work with the buyer.
2. Ask for a Re-Appraisal
Another option is to ask for a re-appraisal. This may be possible if the buyer can provide evidence of recent sales of comparable properties in the area that were not considered in the original appraisal. The buyer can also request a second opinion from a different appraiser.
3. Pay the Difference
The buyer may also choose to pay the difference between the appraised value and the contract price. This may be an option if the difference is not significant, and the buyer is willing and able to make up the shortfall.
4. Walk Away
Finally, if none of the above options are feasible, the buyer may choose to walk away from the transaction. This may be a difficult decision, but it is important to remember that the home buying process is a significant investment. It may be better to wait and find a property that is worth the price rather than paying more than what a property is worth.
In conclusion, when the appraisal comes back lower than the contract price, it can be a frustrating experience for both parties involved. However, there are several options available to resolve the issue. It is important to remember that communication and negotiation are key to reaching a satisfactory outcome. It may also be helpful to have a real estate agent or attorney to guide you through the process.
