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What are my options if the house doesn’t appraise?

January 2, 2010

A question I’m often asked by buyers, as we’re discussing how much they should offer for a particular home is, “What happens if the house appraises for less than the contract price?” This is a great question that is important to any and all home buyers.

In the event the buyer qualifies for the loan, but the home does NOT qualify for the loan, the buyer has to make a decision. The buyer can go ahead with the contract at the stated purchase price, waiving the financing contingency and coming up with the additional cash at closing. Or, the buyer may try to renegotiate the price to an amount that the lender is willing to finance. If the buyer wants to renegotiate but cannot agree with the seller on a new price, the buyer may choose to proceed at the stated purchase price OR cancel the contract. The buyer’s deposit would be returned to the buyer.

I’ll add something here that should be rather obvious. If you’re a potential buyer and you have a contract on a house for $200,000 and the appraisal comes in at $180,000 this means the licensed appraiser is saying that the home is not worth what you are about to pay for it! Should you decide to go forward with the contract and pay the agreed upon $200,000 you will immediately be in the red by $20,000. In some unusual cases it makes perfect sense to pay the $20,000 out of pocket and close the sale, but in most cases it is in your best interest, as the buyer, to either renegotiate the price down to the apprised value, or walk away from the purchase.

NOTE:

Not all appraisers will come up with the same value. A second appraisal can often be ordered in an effort to check the accuracy of the first appraisal. If the second appraisal comes in at contract price or higher, and the appraisal gets approved by the underwriter, the buyer can proceed with the purchase of the property at the contract price.

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