A home appraisal is one of the most important parts of buying or selling a home. The appraisal tells you and the bank what the property is worth. This can be challenging because it determines what the bank is willing to lend to the buyer for their mortgage. A bank or lender will not want to lend more money than the property is worth and because of this, purchasing the home you have fallen in love with can be tricky if the appraisal comes back too low.
What If Your Appraisal Doesn’t Come Back As Expected
In this situation, a seller has a few choices. Sellers can renegotiate if the appraisal is low but close to the initial listing price. This can be as simple as negotiating a lower price and both parties agreeing to it. This does not require the bank or lender to agree it. You can also request a second appraisal if you feel strongly that the first was done inaccurately.
In some cases, a second appraisal comes back differently and in the seller’s favor. Lastly, you can always work on some home improvements that will boost the value. If a new home price can’t be agreed upon and you cannot make any home improvements, you may need to take the home off the market until you are ready to update it with repairs or lower the listing price.
Buyers need the appraisal to come back matching the home price for their loan to be approved. If the appraisal comes back to low then buyers are in a tough spot if they don’t have significant cash on hand. Similar to the sellers, buyers can renegotiate the sale price of the home and hope that the sellers agree to it. Usually, this is the simple fix, especially if the appraisal came back slightly lower than the listing price.
Buyers can also request a second appraisal if they think the first appraisal was inaccurate. Unfortunately, if the seller is not willing to renegotiate the price and a second appraisal doesn’t come back in your favor then your only option to purchase the home is to pay the financial difference out of pocket or the buyer can walk away from the deal. In some cases, this can be a deal breaker because the amount can be much too high for the buyers to come up with the difference. Buyers, in Arizona, are protected in the contract that states that if the property does not appraise for the offer price they can receive their earnest money back.
If your appraisal doesn’t come back as expected, there are a few steps you can take:
- Review the appraisal report to understand why the value came in lower than expected. There may be factors that you were not aware of that influenced the appraiser’s valuation.
- Consider ordering a second appraisal from a different appraiser. This can help confirm or refute the first appraiser’s valuation.
- If the appraisal value is significantly lower than expected, you may need to reevaluate your offer on the property or consider looking for a different property.
It’s important to remember that appraisals are only one factor that lenders consider when deciding whether to approve a mortgage. Other factors, such as your credit score and income, also play a role in the decision.
Appraisals are an extremely important part of the home buying and selling process. Most people have heard of appraisals but are unaware of the important role they play in a real estate transaction. If you are looking to buy or sell a home in Mesa, AZ, contact me. I would be happy to walk you through the entire process so you can have a great understanding of each step as you purchase your primary home or rental.