So you’ve been pre-approved for a home loan, your under contract to buy your dream house, the inspection goes well and there’s only the lender appraisal to go.
Then the appraisal value comes back lower than the agreed upon purchase price and your lender won’t approve the purchase.
Now what?
You still have some options and there are ways to fight a low appraisal. Sometimes they’re successful, other times they’re not but don’t kill the deal because of a low appraisal without trying some of these options first.
1. You can go back to your lender and appraiser and ask them to review the appraisal. You can have your REALTOR compare the properties that were used by the appraiser to make sure that the most current local comparable properties were chosen in order to establish value. If there is other pertinent information that was not included in the appraiser report that could affect the value, you can inform the lender and ask for a second appraisal to be done.
2. You can hire your own appraiser (for FHA loans make sure the appraiser is on the approved appraisal vendor list) and conduct a second appraisal. You can then present it to the lender and ask them to compare both appraisals.
3. You can ask the seller to lower the purchase price to match the appraised value. This can be a tricky situation, although, provided that you have a financing contingency within the contract, if the seller refuses to lower the purchase price you can still walk away from it and get your earnest money back. A savvy seller, however will realize that if the appraisal is correct and they don’t lower the purchase price to match it then it’s likely that the same problem will occur with a new buyer.
4. You can increase the downpayment to match the difference in the appraised value and the purchase price however you need to make sure to discuss this option with your lender before making the decision. The increase in downpayment may affect your loan and your lender evaluation of your loan. Only choose this option if you believe that the purchase price of the property is the true value of the property to you.
5. You can ask the seller to take a second note for the difference. This is also a risky option as the lender may protest, so make sure you discuss it with them prior to approaching the sellers. In certain circumstances the lender may approve and the sellers may be in the position to finance the difference.
6. You can walk away from the property. Provided that a financing contingency is in place, you can get the earnest money back. If the appraised value is accurate and correct and the purchase price is more than the appraised value then very often this is the best option but it shouldn’t be your first option. Having your REALTOR recheck the appraisal comparables and asking your lender to re-evaluate the appraisal using additional information or more accurate comparable properties can at times adjust the appraisal value.
Communication is key and working with a professional REALTOR and lender can make all the difference. Make sure that you are informed of all the options that you have but understand that time is of the essence. Your contract with the seller is also bound by time, so it is very important that you are informed of the options immediately, if not prior, upon recieveing a low appraisal, you will then be in a better position to decide your next course of action.
This is a buyers market and there are new properties coming on the market every day, perhaps a low appraisal just means that there is a better valued property waiting for you to find it.
