Ask A Broker: What Happens when the appraisal comes back lower than expected?
One of the most stressful factors in the real estate transaction usually comes from an appraisal that comes in under the asking the price. An improper valuation can derail a homebuyer's mortgage loan, disrupting a home's sale for the seller, not to mention both real estate agents involved in the transaction. But the good news is that there are options!
Appraisers work on behalf of the lender to verify the true resale value of the property. Naturally many consider their word to be law on the final sales price, but there are ways to contest the appraisal. First, get a copy of the appraisal and check for errors. Is the address correct? How about the square footage of the home or the number of bathrooms? These small details can make a huge difference in price.
Second, point out upgrades and improvements. The appraiser was only in the home for a short time and may have missed some of the newer additions or features in the home.
Lastly, request a second appraisal. If a challenge or a review doesn't change the appraisal, then a buyer can ask their lender to hire another appraiser. Be sure to request someone with geographical knowledge and explain why you are asking for a second appraisal."
For obvious reasons, most sellers wouldn't be too thrilled to reduce the selling price on their home. But in some cases asking the seller to come down in price a little to secure the property is a small inconvenience that would otherwise delay their plans and make life more difficult so it can work depending in the situation.
For obvious reasons (again), most buyers wouldn't be too thrilled to pay more for their home. But in this Southern California real estate market, sellers are receiving multiple offers a day and if someone is not willing to increase their cash contribution, another buyer will. So if the amount isn't too big of a difference, most buyers are willing to raise their down payment.
When you have two realtors that are willing to do what's in the best interest for their clients, that's when the magic happens. In cases like this you'll have both realtors talk to their clients (the buyers and sellers) and negotiate to divide the financial shortfall of a low appraisal. The seller will reduce the price in exchange for a higher down payment from the buyer.
This is the best case scenario for a low appraisal situation, but it takes the leadership of a skilled realtor on both sides to see it through to the end.
-Robert E. Silva