There is a lot that goes into a home sale.

The home search, the offer and the negotiations, the home inspection and the negotiations about repairs, the appraisal…

When Appraisals Come In Low

It seems that appraisals are coming in lower than the contract price more and more often.

This can be really disappointing to the home seller because they may have been thinking that once everyone agreed on the price in the Contract of Sale that it was pretty much a done deal.  Unfortunately, the appraiser might have another opinion.

Ever since the Home Valuation Code of Conduct was put in place, lenders cannot interact, directly, with appraisers.  So there can’t be any hanky panky about trying to get the appraiser to submit a certain, pre-determined house value. The Realtor can’t “encourage” the appraiser, either.

So, whatever the appraiser comes back with is what the mortgage lender is going to go with when they determine about much money they can lend you to buy the house you want.

The Options

Of course, the seller could agree to lower the sales price to the appraised value.  That would be the easy way.

Unfortunately, many sellers have the same emotional attachment to the outcome of the sale as the buyers do.  The seller may “need” or want a certain price.  They may have a mortgage that won’t allow them to sell the house below a certain price without turning the sale into a “short sale”.

Whatever the reason, there is nothing written in stone that says the seller has to lower his sales price to meet the appraised value.

That leaves the buyer with very limited options, too.

They can either back out of the transaction and get a return of their deposit or they can pay the difference between the appraised value and the contract price in cash.

People used to bring a lot of cash to the table back in the days of the housing bubble.  They don’t do it so much anymore. Now, the buyers tend to suck it up and look for another house or drop out of the home search altogether.

The point is that the appraiser doesn’t really care about the contract price.  He looks at the comparables for the neighborhood, the condition of the house – things like size and any amenities or upgrades. The appraiser then comes up with a value (remember: short sales and foreclosures in the neighborhood tend to depress home prices).

As the saying goes, “It ain’t over ’til the Fat Lady sings.”  There are lots of challenges to overcome and that’s why it’s important to pay attention to the guidance of the real estate professional you’ve chosen to work with. Believe it or not, they do this stuff for a living.

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