What Happens When the Property Does Not Appraise?

The buyer has nothing to worry about if the property appraises higher; in fact, a higher appraisal does not need to be disclosed to the Seller or Listing Agent because the inspection is a Mortgage Lenders requested inspection. Telling them that the property appraised is enough.

But what happens if a property does not appraise at the negotiated price?

If the property does not appraise a copy of the appraisal will need to be submitted to the seller and Listing Agent as proof that the property did not appraise. In a hot market sometimes the appraisal orders fall behind sales being reported and this can be an issue. Sellers can be present at the appraisal inspection to point out improvements and features that can help increase the value. The sellers can also provide a list of improvements and costs associated to help increase their property value. When properties don't appraise at the offer accepted sale price the buyer and the seller have a few options below.

Suggestions:

1. The buyer can cancel the transaction and submit a cancellation of escrow form to request the return of their earnest money deposit. This document must be signed by both parties to have the funds returned.

2. The seller can reduce the accepted purchase price. If the offer was an accepted FHA or VA mortgage loan an FHA/VA addendum was signed in advance and the seller has already agreed to a price reduction if the home did not appraise.

3. The buyer can increase the down payment to cover the excess costs. Be prepared if you truly love the home. This option we'll call buying your equity upfront with hopes that property values will continue to increase over time.

4. The seller can reduce the accepted sales price and the buyer can come up with additional funds. Maybe the buyers’ and sellers’ Realtors can provide a closing cost credit from their brokerage fees to help close the transaction. Most Realtors are willing to help out where they can.

5. You can order a second appraisal at your expense and hope for a better outcome. Cross your fingers, say a prayer and wish for the best!

Appraisals can be problematic but if one loves the home it's worth fighting for a better outcome.

Keep smiling, keep closing, and enjoy buying and selling real estate.

Leah Stapleton
510-684-1455