One of the most frustrating aspects of buying or selling a home is dealing with a low appraisal.
It’s a week before closing and the purchaser and the buyer have settled on a price but the appraisal comes in short of that. The bank or lending institution won’t lend more than the value of the home so what’s a purchaser to do?
If yours comes in low, be sure to go over it with a fine-tooth comb. Did the appraiser leave out a bathroom or neglect to include a valuation for granite countertops? Believe it or not, it can happen. Though such mistakes are uncommon, make sure your appraisal does not fall victim to oversight.
Once you’ve done that, analyze what home comparisons the appraiser used. How similar are they to your house? And how recent are the sales? Was the appraiser well-versed with the neighbourhood or an outsider?
Sellers are also affected when appraisals come in low, though not as drastically. They need to be realistic about the value of their house. Unless you’re lucky enough to get a buyer who is paying all cash and doesn’t need to borrow, you’re better to lower your asking price early on or you’ll be faced with appraisals that fall short and a lot of abandoned deals.
Remember all’s not lost with a low appraisal. Keep your chin up and consider the following:
Try to lower the price: Let’s face it, a traditional lending institution is not going to lend more than the home is worth so it might be worth a try to see if the seller can be persuaded to lower their price.
Take a second look at what’s included: Often, pending sales have appliances and other items included. Consider renegotiating to reduce the price by using some of these items as leverage.
Fork over the difference: If the buyer really wants the house, consider paying the difference between what the offer is and what the bank will lend.
Order a second appraisal: Ask your lender for a list of approved appraisers. Each lender has their own list of appraisers they will accept.
The seller can help out: If the buyer really wants the home, but can’t come up with the difference in cash, the seller can offer to carry a second mortgage on the amount of the difference required to close the sale.
Making payments or a lump sum payment at a later date to the seller is another option. Always have a lawyer or notary view this type of arrangement to eliminate any confusion or errors in this type of contract.
The buyer can cancel the sale: Assuming the appraisal is accurate, that indicates the home may have an inflated price tag. The lender will not lend more than the home is worth and the buyer does not have excess funds to pay the difference.
Are there times when it’s best to just walk away? Sure. Perhaps the appraiser did you a favour. And while it may not seem like it at the time, you may come to appreciate not having bought a house for more than it is worth.