In the voyage of purchasing a property, the appraisal is a critical milestone, often dictating the terms of financing and the closing process. However, what happens when this appraisal comes in lower than your offer? This unexpected turn can lead to choppy waters in what might have otherwise been smooth sailing. This blog will delve into the steps buyers and sellers can take if they find themselves in this precarious situation, highlighting innovative solutions beyond the conventional renegotiation.
The Power of Review and Reappraisal
If an appraisal falls short, it’s worth asking for a review. Sometimes appraisers may miss key features of the home or recent comparable sales that justify a higher value. In some cases, a second appraisal may be an option, especially if you believe there were errors in the first or if market conditions have changed.
Exploring Alternative Financing
A low appraisal may affect the loan-to-value ratio, an essential factor for lenders. Should this occur, buyers can explore other financing avenues. This could include a different type of loan, seeking a second mortgage, or finding a lender with more flexible requirements.
Creative Negotiating Tactics
When an appraisal undercuts an offer, it’s a chance to renegotiate the sale price. However, it doesn’t always have to be a direct price cut. Consider negotiating for the seller to cover closing costs, home warranties, or repairs, which can offset the lower valuation without adjusting the sale price.
Seller Concessions and Buyer’s Top-Up
Sellers may agree to lower the price to the appraised value, but if they’re firm, buyers can choose to pay the difference in cash if they believe the property is worth the higher amount. This is particularly common in competitive markets where buyers are willing to invest above the appraised value to secure a home they love.
Mitigating Future Risk
For future protection, buyers can include an appraisal contingency clause in their offer, stating that the deal is contingent upon the appraisal meeting or exceeding the offer amount. This clause provides a safety net allowing buyers to walk away from a deal without losing their deposit should the appraisal come in low.
Conclusion
An appraisal coming in lower than an offer is a hurdle, but it’s not insurmountable. It opens up opportunities for reevaluation, alternative financing, and creative negotiation, allowing both buyers and sellers to reach a satisfactory agreement. By understanding the options and being prepared to explore them, parties can navigate this challenge effectively and steer the deal toward a successful closing.