What Happens If Appraisal Comes in Low?
What Happens If Appraisal Comes in Low?
Is the deal completely dead if the value of an appraisal comes in below the agreed upon price?
No, it’s not dead. There are still some options and ways to keep the deal alive.
The first option is for the seller to agree to reduce the price of the agreement to the appraised price.
This is the simplest avenue, but not all sellers are agreeable. We see sellers become even less agreeable in hot seller markets.
The second option is for the buyer to make up the appraisal difference.
A buyer could make up the difference by bringing additional funds to closing, but can sometimes also be able to adjust the percentage the buyer is putting down without requiring them to bring additional funds to closing.
The third option is a mix between the two where the seller agrees to reduce the sales price and the buyer brings additional funds to closing. As an example, if there was a $20,000 difference between the agreed upon value and the appraisal then the seller would agree to reduce the price by $10,000 while the buyer brought an additional $10,000 to closing.
The fourth option is terminating the deal and all parties moving on. If this is the case and the buyer had a mortgage contingency and all dates were met in the mortgage contingency then the buyer would (most likely) get their deposit back.
Transcript of Conversation:
- What happens when an appraisal comes in below agreed-upon value? Hi, I'm Jeff Chubb with EXP Realty. We're here with Jason Bonarrigo of RMS mortgage and make sure that you stick around to the end of the video to find out what we're going to do with $1,000. So, Jason, first off, tell me what exactly is an appraisal?
- Oh, an appraisal is essentially what we do to certain lenders to certify the value. Obviously, we want to make sure that we're lending the right amount on a market value that's been certified by a third party.
- Okay, so what happens? Is this deal completely dead if that value that has been certified by that third party comes in below agreed upon value? So let's just make up some numbers. Let's say we were under agreement for $500,000. Appraisal came in at 480. Are we done?
- No, no, the good news is, no. I mean, obviously it depends and I could talk for hours upon the differences but it really just means that we kind of go back to the negotiation table.
- Okay, so what's my first option?
- The first option for the buyer, and I think we're talking about the buyer here in this sense is that they obviously could just make up the difference in cash.
- Okay so-
- If they have the ability to so.
- So first option, make up that difference in cash. But it doesn't always necessarily mean that I have to bring the cash. Like in that case, the 480 to 500, doesn't necessarily mean I have to bring the extra 20 grand.
- The extra 20 grand, no of course not. And again, what I meant by the differences is obviously one client or one borrower could put down 5% and one could put down 50%. The guy who's putting out 50% has a lot more options and it's not really going to impact the financing as much. So we're going to talk to each individual on a different idea.
- So he can kind of restructure the deal a little bit?
- Of course.
- Probably not bring that 20,000. But like you said, the guy who's putting 5% down, probably would have to go.
- Then we'd have to have make up the difference, or we can talk about renegotiation with the buyer and the seller.
- Well and so that's option two, right?
- Of course.
- So where in that case the seller would go down to $480,000, right.
- Yes. Or they would, as you know, you would go back to that listing agent and say, hey, this is what we have, this is the appraisal. What do you think? Depending on the market and who has kind of more leverage in that situation, but hopefully as we've seen in the past most parties come together and what usually happens is they meet in the middle. Right?
- So option one is I, as the buyer come to the table with $20,000.
- Just make up the difference.
- Option two is the seller comes down $20,000 to that $480,000 example, right? Or option three is maybe we meet in the middle or something else. Maybe it's 490. I bring 10 grand.
- 10 and 10.
- And the seller comes down $10,000. And then I think the fourth option is, well we can't make this work. So you know have a nice day.
- We can walk away right. And usually you try to get that before the, right after the purchase and sales so you have some flexibility there.
- Right. Okay so make sure that you stick around and check out our videos. What actually happens when an appraisal comes in above agreed upon price? This is what happens when the value comes in below agreed upon price and what are we going to do with that thousand dollars? So, but first Jason, where can they find you?
- Jason Bonarrigo, RMS mortgage 617-413-5038.
- And I'm Jeff Chubb, my team the Chubb Homes Team we're brokered by eXp Realty 617-480-2600 or find us online boston2.com. So the thousand dollars, make sure that you hit subscribe below because we hit 1000 subscribers, we're going to give a thousand dollars to the ASPCA kind of save some puppies. So make sure you hit subscribe below and share with your friends who might be thinking about buying or selling a house and, and feel free to reach out to us with well all of your real estate questions. Thanks for watching.