Lenders rely on appraisals. So, if the appraisal on your dream home comes in lower than expected, it may kill your deal. But there are solutions.
Low appraisals happen for many reasons. A low appraisal may have nothing to do with your property – it may be all about the market: In a buyers’ market, a low appraisal may reflect high inventories due to market conditions; in a sellers’ market, particularly in hot areas with low inventory, multiple offers may push up prices artificially. Both can skew the data used by the appraiser to value the property.
Whatever the reason, you’d be wise to consult with your lender, who really does want your business, and your local real estate agent, to request a second appraisal. Even though you have to pay for it, the second appraisal often does come in higher; this may happen if the appraiser is inexperienced or not local and may have made the appraisal based on incorrect sales data.
Here are other options:
- As the buyer, you can make up the difference between the low appraisal and the selling price in cash to the seller.
- If you’re the seller, you can lower the prie to be consistent with the appraisal.
- The seller also can offer to hold a second mortgage on the property.
- As the buyer, you can walk away from the transaction.
That said, if this is your dream house, chances are you’ll find it worth the effort and extra cost to make your deal work.