If the appraisal for your dream home is lower than your offer, you need to look at your next steps. Don’t panic, you do have many options.
Check Appraisal Contingency Clause
First, look over the appraisal contingency clause. This clause generally allows you to reevaluate the situation or renegotiate if needed. Maybe the appraisal estimate of the home’s value was inaccurate, did not take into account most recent comparable properties, so ask for a review.
You can cancel the transaction. Many purchase contracts contain a loan contingency. It allows termination if the appraisal comes in low, and you will not qualify to buy the property at the agreed-to terms in the contract. A properly written loan contingency allows you, the buyer, to cancel the contract and requires the seller to release your earnest money deposit.
If you were putting down 20 percent, for example, you could switch to a 10 percent down loan program and use that newly freed-up cash to negotiate a higher cash payment directly to the seller.
Look Into a Second Appraisal if Home Appraisal is Lower than Offer
You can try working with your lender to get a second appraisal. In some instances, especially if you are well qualified, the seller may be willing to pay for a second appraisal to keep the deal on the table. As the buyer you can also make up the difference in cash. Talk to your lender. At Chelsea State Bank, our mortgage officers look at the appraisal to the extent it affects the loan-to-value ratio.
Talk to the Seller About Options
Another potential solution to the low appraisal problem is for the seller to agree to lower the price. Often this is the best solution if the home was overpriced or the value was inflated. This could be an advantage for the seller. There is no guarantee that if the buyer walks away, the seller won’t receive a low appraisal from the second buyer’s lender. In addition, the time and trouble it takes to put the home back on the market and try to sell the property again.
You may also be able to work out a compromise on the value with the seller. Sometimes a seller will back off a little bit on you paying the entire difference and will settle somewhere between a full cash contribution and completely lowering the price. For example, regarding a difference of $10,000, a seller might agree to accept $5,000 in cash and lower the price by $5,000.
The seller can also offer to carry a second mortgage for the difference. If you really want the home but cannot come up with the difference in cash, making payments or a lump sum payment at a later date to the seller holding a second mortgage is an option.
When getting a mortgage loan always talk to one of our experts at Chelsea State Bank about the appraisal and loan process. You want to have a good understanding on what to expect from start to closing and beyond. Chelsea State Bank can help you. Call us at (734) 475-4210 or visit us online here.
Chelsea State Bank is an Equal Housing Lender