It’s possible to put in an offer on a home and have the appraisal come in at less than the contract price. When this happens, if you’re not prepared, it can be a huge problem. Here are some of the ways to deal with the appraisal coming in at less than the agreed upon price for the home.
Seller Reduces the Contract Price
If the home you are trying to buy doesn’t appraise for the agreed upon contract price, the seller could agree to reduce the price. Since the home isn’t worth what they are trying to sell it for, or what you agreed to pay, they may be willing to drop the price to make the deal work. However, in this market of ‘multiple offers’ and buyers sometimes overbidding to get their offer accepted, a seller might stand firm on the amount you offered, no matter what the appraisal is.
Pay the Difference in Cash at Closing
Another option, if the homes is worth it to you and you’re okay with paying above the appraised value, you could bring the difference in cash to closing. In other words, you would be modifying the financing terms by increasing your down payment. For example, if the agreed upon price was $300K and the appraisal came back at $290K, you may need to kick in another $10K down to make the financing work.
Seller and Buyer Come to Another Agreement
The seller and the buyer can come to any other agreement they’d like. For example, they could agree to split the difference with the seller dropping the price of the home some and the buyer bringing extra cash to closing. This may not always be a perfect 50/50 split, but the buyer and seller could come to an agreement to help make the deal happen.
Financing Terms Could be Adjusted
If you already agreed to put down a larger down payment, you could end up putting the same down with different loan terms. Maybe you were originally putting 20% down and now that down payment becomes 15%. You may still be able to get the mortgage, but with different terms.
Of course, if the seller and the buyer cannot reach an agreement, the contract would need to be terminated and both parties can move on. This may or may not be the best decision, in some cases, but there are several ways you can deal with the appraisal coming in lower than the contract price of the home.
In this market it’s more important than ever to have a trusted Real Estate Advisor that will assist you and guide you, so you can arrive at a decision that is best for you.
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