Appraisals are a critical part of the home buying process. The appraisal will determine the value and, if it does not appraise at the price paid, this can create problems for both parties. We’ll examine what happens if the property appraises for less than the purchase price.

If the appraised value of the property is less than the purchase cost, then the first thing the buyer might need to do is come up with extra funds to make up for the difference. The buyer might need to provide an additional $20,000 if, for example, the purchase price of $300,000 is less than the appraised value of $280,000.

The buyer may also try to negotiate a lower price with the seller, so that the appraisal value is matched. The conversation can be challenging, but remember that the seller might be motivated to sell the house and be willing to bargain to prevent the deal from falling through.

If the buyer and the seller cannot agree on an updated purchase price, the buyer has the option to walk away. Most purchase contracts have an appraisal clause that allows the buyer the option to cancel the deal if the property appraises for less than the purchase price. In such a case, a buyer can get back their earnest money and pursue other options.

They may be willing, if the seller wants to close the sale and does not want to lose it, to compromise with the buyer. Sellers may offer buyer financing, or even a lease to own option, to help them come up with enough money to make the purchase.

The seller may also choose to order a second appraisal. In some cases, the second appraisal could have a higher value. This can help bridge the gap that exists between the appraised and purchase price. It is a risky move, because there’s no way to know if the second appraiser will come back with a higher value than the first.

It is important to note that if the property appraises below the purchase price it could cause issues for both buyer and seller. Both parties have a variety of options, including negotiating for a lower price or walking away from the transaction. You should work with a lender and real estate agent who have experience in dealing with appraisal problems. They can guide you and help find solutions that are acceptable to both parties. Being proactive and open to other options can help you increase the odds of a real estate deal being successful, even when the property does not appraise at the initial purchase price.