What To Do If The Appraisal Is Lower Than The Offer
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Appraising the house you want to buy is one of the most crucial steps when you’re planning to purchase a new home. A home purchase appraisal is required in nearly every mortgage application.
When an appraisal is lower than the offer, it kick starts an anxiety-inducing process which can make or break your ability to buy the home of your dreams. But hopefully, we can help you navigate this process and help you understand what your next steps should be if the appraisal is lower than the offer.
Key Highlights
- A home appraisal is a simple process but has a big impact on the market value of a home you’re looking to buy or sell.
- Low appraisals aren’t common but if you do end up getting one, you have plenty of options.
- A good appraiser will consider all the necessary factors and do their absolute best to get you the best value depending on the market conditions.
Are you a first-time buyer?
What is an appraisal on a home?
A home appraisal is, simply put, a valuation of a home to establish its market value and make sure the selling price is accurate. A home’s market worth is verified by an appraisal. If you’re applying for a mortgage loan, lenders will almost always want a home purchase appraisal to be completed by a third party.
Often, the organisation or the bank will want to make sure that the investment is protected and that you aren’t overpaying to purchase a home. They want proof that the house is worth more than the loan balance and that they can recoup any losses in the event of a loan failure.
How does an appraisal work?
If you’re looking to buy a home, you might be wondering, how do I get my dream home appraised? It’s a really simple process.
Typically, your lender will hire a qualified appraiser that thoroughly assesses your house, taking into account its location, improvements, and any other factors that might affect the final price of your home. The appraiser will then examine nearby comparables to determine how the home compares to others in the area.
A good appraiser will compare at least three other homes to the one you’re looking at. Appraising the house isn’t necessarily a long process but it does take some time.
When the appraiser is done, they will submit a standard appraisal report to you and your lender that includes all necessary information including the recommended market value of the home.
What a low appraisal means for you
If the value estimated by the home purchase appraisal is less than the purchase price decided upon by the buyer and seller, don’t stress too much. Remember, an appraisal is based on comparable closed sales in the neighbourhood and gives a quick glimpse of the appraiser’s assessment of the current market worth.
Because the lender bases the loan on the appraisal, the amount they will finance is limited when the appraised value is lower than the purchase price. Your closure could be postponed or even halted by a poor evaluation.
Even though this may seem frightening, it’s crucial to remember that your real estate agent can assist you in managing the appraisal procedure and keeping you on schedule for closing the sale.
What happens if the appraisal is lower than the offer?
While low appraisals aren’t super common, they still do happen. But you have options if the appraisal is lower than the offer. When it comes to that, a mutual agreement between the buyer and seller must be reached to ensure the transaction’s success.
Your lender will probably lower the amount you can borrow if the appraisal comes in below the buying price. Therefore, you’ll either need to make additional cash payments or negotiate a reduced asking price with the vendor. If the negotiations are unsuccessful, you will need to increase the down payment to get the same mortgage rate.
You could also shop around for a new lender if the appraisal is lower than the offer. No two lenders are the same and it could happen that a different appraiser will come up with a better home purchase appraisal for you.
Or simply, you can walk away or wait it out. It all depends on how much you really want the home. Don’t hesitate to shop around the same neighbourhood or even nearby neighbourhoods because maybe you’ll find a home that’s even better than the one you’re looking at right now.
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Why you should avoid spending more than the appraised value
All sellers and buyers have different needs and desires in mind when getting a home appraised but in the current real estate market, savings are crucial in the long run.
You have to consider where the market is going and consider renegotiating the appraisal and offer. It’s far too easy to get sucked into bidding wars in this competitive real estate market and you can get saddled with a long-term mistake if you get it wrong.
When you can afford a bigger mortgage
You will be responsible for making up any shortfall if the appraisal is less than the bid price. If carrying out that requires you to use all of your resources or take out a loan against your retirement account, it might not be the wisest financial decision.
When you won’t be in your home long-term
Think about whether you need to sell the house sooner than you anticipated or when you plan to list it. If you don’t live in the house long enough to accumulate enough equity, spending more than the appraisal could make it very expensive to sell.
You’re taking a big risk, for instance, if you sell the house in a few years because the value might not increase to what you bought. Be honest with yourself and your expectations.
When should you pay more than the appraised value?
These days, the majority of buyers don’t have many options in their property search due to the stubbornly low levels of housing inventory. Offer prices have been raised even further in response to the exorbitant listing costs.
In some circumstances, paying more than the appraised worth to secure your dream property is acceptable for instance, if you can afford the payments every month or if you want to remain in the house for a long period, giving you plenty of opportunity to accumulate equity.
FAQ
What is an Appraisal Rebuttal?
An appraisal rebuttal is a procedure whereby the buyer’s lender asks the appraiser to reevaluate the home’s appraised valuation.
What Happens If Your Home Appraisal Is Too Low?
You can either negotiate, submit an appraisal rebuttal, get a second opinion, or even wait it out and hope the market gets better.
What if my home appraises for less than its purchase price?
It’s not super common, so don’t worry. But if your home appraises for less than its purchase price, you have plenty of options such as working with your appraiser to find a better offer or simply walking away and restarting the process.
Final Thoughts
There are several factors that can change during the home-buying process. The house appraisal is one of these components. Low appraisals do occur, and they can lead to delays. But in most situations, you can fix these issues and proceed with the closing by working with your real estate agent and your lender to get the best appraisal possible.
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