If the buyer is financing the home with a mortgage loan, then the property needs to be appraised as one of the final steps in the real estate transaction. An appraiser will come to the property to assess the value and be sure that it matches the purchase price and it accurately reflects the market value. Whether you’re buying or selling, the purchase price must be accurate so it appraises correctly. Read on to know what to do if the property doesn’t appraise.
What is a home appraisal?
A licensed appraiser hired by the mortgage lender, will come and evaluate the house, location, home features and upgrades, and overall condition. Then, the appraiser will look at the area’s comparables to see how the house compares. They typically compare the house to three other homes in the area that were recently sold, that are similar size and condition to compare prices and to make sure they align.
So the house doesn’t appraise? Here’s your next steps
While it’s rare that the house doesn’t appraise, it’s still a possibility. This can be a risk in a highly competitive market when homes sell well above the price. Below are several ways to handle a house that doesn’t appraise.
Renegotiate
If the appraisal is lower than the offer, it can be an opportunity to renegotiate. Since the home is worth less than the agreed-upon price, the seller may be open to coming down on the price. If you’re the buyer, you may benefit from a lower cost. If you’re the seller, you may need to consider if lowering the price is something you’re willing to do to complete the sale.
New lender
For buyers, if the home doesn’t appraise, you can use a new lender, which means a new appraisal. If your credit is excellent and you can quickly obtain another financing option, this may appeal to you. However, this adds time and additional costs to the transaction, so as a buyer, it’s essential to determine if the house is worth it.
Challenge the appraisal
Just because the home appraised at a specific value doesn’t mean that is the final number. This number can be challenged if substantial data can defend the purchase price.
Request a new appraisal
If either party feels strongly that the home was not appraised correctly, the buyer can request a new home appraisal by talking to the lender. Comparable sales, sales data and an explanation of why the purchase price is accurate may help to have the house re-appraised.
Walk away
Whether you’re buying or selling, a real estate transaction is substantial. If you’re not entirely comfortable with the sale price and there is no room for compromise, it’s in your best interest to walk away. Another buyer or another home will come around, but it’s hard to put a price on peace of mind.
