You took the leap and listed your home for sale, found a solid buyer, and agreed on an ideal price and terms that make everyone happy. You’re well on your way to the closing table – until one thing threatens to derail the whole transaction: a low appraisal.
If you’ve accepted an offer from a buyer who’s using financing – and most do – then an appraisal is typically part of the lender’s process to determine whether the property's assessed value is at least equal to the selling price. It's rare – not to mention risky – for buyers to be approved for a mortgage on a home that's priced higher than its fair market value. And a licensed appraiser is the only person who can determine that value.
Oftentimes the process goes very smoothly and the appraisal matches or beats the buyer offer. In other cases, the appraisal is lower, which means the buyer might not be able to make good on the initial offer.
That can create an eleventh-hour headache for everyone involved in selling a home.
Don’t panic, though. Your agent can challenge a low appraisal in a couple of ways. For one, your agent can ask the buyer to make up the difference between the offer and the lower appraised value in cash. But that’s not always possible for buyers. If you’re unable to accept a lower price to match the appraisal, then the buyer could choose to walk away from the sale. That means, however, the buyer will have to start the home search all over again and you'll have to wait for another buyer, so it benefits everyone to negotiate, if possible.
If negotiation isn't possible, there might be an option to appeal. Buyers who are trying to obtain an FHA or VA loan, which are both backed by the government, can follow the formal appeal process for revising an appraisal. With solid comparable data for recently sold homes in the neighborhood and accurate information about the property in question, your agent and the buyer’s agent have a good shot at successfully appealing the low appraisal and ending up with a higher appraised value.
Communication and quick action is key in this process, so it’s important that your agent and the buyer’s agent work closely together, whatever the course of action, to arrive at a resolution.
If you're thinking about selling and want answers to your questions, contact a local RE/MAX agent today.