What To Do When the Appraisal Comes Back Low

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Closing day is within sight, and then you learn the appraisal value doesn't align with the agreed-upon price.

If a home appraisal comes back low after your real estate client thinks he or she has found the one, it doesn’t have to mean the deal is dead. Use these tips from seasoned real estate pros on what to do depending on the situation.

Determine what’s driving the lower appraisal

Low appraisals can happen for several reasons, including high-demand and low-inventory markets, a list price that’s not justified based on comparable neighborhood sales or an appraiser who isn’t familiar with the area.

“In most of these cases, the buyer will typically request the seller reduce the sale price to the appraised value,” says Lisa Rowe, an agent in Fredericksburg, Virginia. “If the seller is in a position to do so, that is usually what happens. After all, the scenario would probably repeat itself with the next buyer.”

Your first order of business after a low appraisal? Dig into the details quickly. From there, you can form a plan on how to respond with your client.

“From the moment the appraisal comes in low, anything in the contract can become negotiable again,” Rowe adds.

If the home had multiple offers

In high-demand markets where a seller is more unlikely to budge on price, the buyer may be willing to pay more than the appraised value.

“If the buyer is purchasing the home with cash and wishes to waive appraisal, all is well,” Rowe says.

When working with a mortgage lender, however, Rowe says the buyer may have the option to pay the difference between the appraised amount and the purchase price in cash—but that depends on the lender’s policies and buyer’s finances.

If neither party bends, the deal could end without consequence.

“In a scenario where the seller will not lower the sale price to the appraisal amount, the buyer should be able to get earnest money back and walk away, as long as the contract included an appraisal contingency,” Rowe says.

If the appraiser’s value is surprising

The appraiser may be unfamiliar with the neighborhood and comps or was misinformed about the home.

If you truly believe the sale price is justified and want to challenge an appraisal, Mark Ferguson, a real estate professional in Colorado, says the process will have to be handled by the lender who ordered the appraisal. If all parties can reach an agreement, make sure you retain solid evidence.

“The challenge needs to show either there’s a mistake in the report or at least three (ideally six) comparable sales of higher value that should have been used—along with the reasons why they are better,” Ferguson says.

Do what’s best for your client

No matter the reason for a low appraisal, work with the other party’s agent to understand the details behind the decision. Doing so will help you reach a resolution.

“If the sellers hold their ground at list price, and the buyers cannot come up with the additional funds, both will have to start the process over,” Rowe says. “As agents, we do our best to keep things moving in the right direction for our clients.”

By committing to what’s best for your client, you’ll be more likely to maintain a healthy and rewarding relationship.

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