A low appraisal can sound alarming when you already have a buyer and a price everyone agreed to. But before we assume the transaction is in trouble, let’s understand what the appraisal actually means. It’s one piece of the buyer’s financing process, and if the value comes in below the contract price, we may still have several paths forward. The right response depends on the appraisal, the contract, the buyer’s loan, and what each side is willing and able to do.
Appraisal issues are one reason some closings are delayed, so it helps to know how the process works before we ever need to solve one. If your buyer is financing the purchase, the lender may use an appraisal to help determine whether the property adequately supports the loan. If the result creates a gap between the contract price and the value the lender is willing to use, we’ll look carefully at why and then work through the choices available to you.
WHAT IS AN APPRAISAL?
An appraisal is an independent professional opinion of value supported by market information and analysis. The appraiser considers the property and relevant market evidence, which may include its condition, location, size, features, improvements, and comparable sales.
It helps to distinguish an appraisal from the Comparative Market Analysis (CMA) we may have used when deciding how to price your home. A CMA helps us understand how the property competes in the market. An appraisal is performed by an independent credentialed appraiser for a specific valuation purpose, often for the buyer’s lender.
WHY IS AN APPRAISAL NEEDED?
When financing is involved, the lender wants to understand the value of the property securing the loan. Depending on the mortgage and lender requirements, that may involve a full appraisal or another acceptable valuation process.
The buyer is generally the person entitled to receive the appraisal from the lender in a typical first-lien mortgage transaction. As the seller, you may not receive the report or even the exact value if it supports the financing and creates no issue for the transaction.
If the buyer is paying cash, there is no lender requiring an appraisal. The buyer can still choose to obtain one if they want an independent opinion of value and the transaction allows for it.
WHAT IF THE APPRAISAL COMES IN LOW?
This is where I want us to slow the situation down and look at the details before deciding what it means. A contract price tells us what one buyer agreed to pay. An appraisal gives us an independent opinion of value for the lender’s purposes. Those numbers can differ.
If the difference affects financing, we’ll review the contract and understand what choices the buyer has before deciding what makes sense for you.
- The buyer may have a contractual right to cancel. An appraisal or financing contingency may provide that option if its requirements are satisfied. We’ll look at the actual language in your agreement rather than assuming a low appraisal automatically lets the buyer walk away.
- We can explore a new agreement. Perhaps reducing the price makes sense. Perhaps the buyer can contribute additional cash. Maybe each side moves partway. We’ll look at the size of the gap, the strength of the transaction, your priorities, and the buyer’s financing before deciding whether a compromise serves you better than returning to the market.
- The buyer may decide to cover more of the difference. If financing permits it and the buyer has the funds, they may choose to bring additional cash rather than lose the home. That is ultimately the buyer’s decision, but it can become part of our negotiation.
- There may be a reason to request another look at the appraisal. If we identify a factual error, a significant property feature that appears to have been missed, or more appropriate comparable sales, the buyer can ask the lender about its reconsideration-of-value process. I can help gather relevant real estate information for the buyer’s agent to use through the appropriate channel, while respecting the appraiser’s independence.
WHAT CAN WE DO AHEAD OF TIME?
We can’t guarantee an appraisal result, but we can prepare intelligently. If your home has significant improvements, unusual features, permits, or other relevant information that might not be obvious from public records, I can help organize that information so it is available appropriately. I can also be ready with relevant market information if questions arise.
And long before the appraisal, our original pricing strategy matters. If an offer pushes significantly beyond the market evidence, we can talk about the appraisal risk before accepting it rather than discovering that risk only after the contract is signed.
If the appraisal does create a problem, you won’t have to figure out the possibilities by yourself. I’ll help you understand what the contract allows, what the buyer is proposing, what the market evidence tells us, and what each option could mean for your sale.
Sometimes the best decision will be to hold firm. Sometimes it will be to compromise. And sometimes additional information deserves another look. My job is to help you see the paths clearly enough that you can choose the one that takes you where you still want to go.