What to do About a Low Appraisal – From a Roseville Real Estate Agent 
What do you do if you’re in contract on a home, you get an appraisal, and the value comes in less than your offer price? You have several options:
- Come out of pocket for the difference between the appraised value and the offer price
- Renegotiate the offer price
- Cancel the sale
The listing agent and the seller will most definitely want you to continue with the sale at the original offer price. Your lender will NOT lend for more than the appraised amount so that means you will have to bring in more cash to close. For example, if your offer price is $375,000 but the appraisal price is $360,000, you would have to bring in an additional $15,000 in order to close escrow. This option isn’t for everyone. First, a lot of buyers don’t have the extra funds available in order to do this. Also, paying more than an appraiser values the home is a tough nut to swallow…no one wants to feel like they are over paying. I would normally NOT encourage my client to pick this option however, there are times when it’s appropriate. If the appraised values haven’t caught up with the speedy increase of market values, or if there is really low inventory and back up buyers ready to buy at the same price or more, coming in with the difference in values to close and in order to not loose a great opportunity, is a good option.
As an experienced Roseville real estate agent for 14 years, I usually encourage the second option; renegotiate the offer price. You have a licensed appraiser using the closest comparable homes possible in order to give a detailed report regarding the value. That’s nothing to take lightly. Even though you were willing to and can qualify to buy this home at $375,000, it’s very possible that you are overpaying by $15,000. Armed with your appraisal, it is time to ask for the offer price to be reduced to $360,000. Your real estate agent needs to fight for you, send and addendum, and make the case for the lower amount. The seller will have to consider this. They have already invested time in you as a buyer and may be nervous to put their home back on the market and find a new buyer. With a new buyer, they will most likely run into this same appraisal issue. You really have nothing to loose by asking because if they reject the new price, you can still decide to proceed with the original price or cancel the escrow.
Canceling the sale may not be the option you want, but it’s still an option that should be considered. If the sellers are unwilling to negotiate and you can’t or do not want to come in with the additional funds to close, understand that there are other houses and even though hard, this should not be an emotional decision. Perhaps backing out of your dream home over $15,000 isn’t worth it, BUT I’ve seen values differ by more than $50,000. That kind of difference is much harder to swallow. Should you take that kind of a hit financially? Of course there are the totally unique custom homes with value that the appraiser doesn’t see or can’t use but typically, there will be a similar home you love just as much, right around the corner so don’t look at canceling over a large value difference as a bad thing. You could actually be saving yourself a lot of financial heartache by canceling the sale.
A couple of notes to consider. If you are a buyer and you write an offer without an appraisal contingency, you will not be able to renegotiate the price. You are basically agreeing to come in with the value difference, if any, from the very beginning. Also, if you are a buyer and you find yourself in this position, you will have so many people involved in the sale who are giving you their opinions on the value. Everyone from the seller, to your lender, to your agent will be telling you what they think you should do. It may be a good time to ask an experienced 3rd party, who isn’t involved in the sale, to give you their opinion on the value. This could be a second appraiser or even another real estate agent.
Of course, every real estate sale is unique and comes with their own set of issues. I’m always here to talk real estate and bounce ideas off of! Allan Sanchez: Roseville area Real Estate Agent: 916-205-2265.
What to do About a Low Appraisal – From a Roseville Real Estate Agent
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