Home Appraisal Lower Than Purchase Price? Here's What To Do.
When you're in a sellers market and there's upward pressure on prices paired with limited inventory, a lot of times what you'll see are multiple offer situations. Prices are driven up, in some cases above recent comparable sales, and sellers typically accept their highest and best bid. Would you blame them?
When the appraiser for the bank, for the buyer's lender, orders an appraisal, that appraiser is going to value that property in the ballpark of the most recent comparable sale. So if you're an escrow and you have an appraisal that comes in lower than the purchase price, you now have an issue to deal with.
What's going to happen in that situation is the buyer's lender is only going to give that buyer a loan based on the appraised value, not based on the purchase price. So essentially, you've really got three different things that could happen here.
Your 3 Options
- The seller lowers the price to the appraised value and the buyer now purchases that home at the appraised value price.
- The seller digs their heels in and says, "You know what? We're not going to drop our price," and you, the buyer, are going to get your loan based on that appraised value, but you're going to make up the difference between the appraised value and the purchase price in cash. Basically, we're bringing additional funds to the table.
- Probably the thing that we see most frequently, is some kind of meeting in the middle.
Let's say the buyer's in escrow at $900,000 and the appraisal comes in at $870,000. It would not be that uncommon to see the buyer and seller to agree on a new price of $885,000. The loan is based on the $870,000 - that's where the down payment is based on - and then that $15,000 difference, the buyer brings in, in cash.
Now, that's going to differ situation to situation on how it all plays out. For example, if you have a lot of offers on a property, it's likely that the seller may say, "You better pay the difference or we're moving onto the next buyer." If that seller's been on the market for five months and this is the only offer they've received, and there's that appraisal issue, it may be that the buyer's got a little bit more negotiating power to say, "I'm going to pay the appraised price." And if it's somewhere in between, that's where you might see a meeting of the minds and meeting halfway, or something along those lines.