You’ve found your dream home and made an offer. Everything seems to be falling into place, only for the appraisal to come in lower than the price you agreed to pay. This can jeopardize your mortgage, as lenders typically base loan amounts on the appraised value — not the offer price.
While a low appraisal can throw a wrench in a real estate transaction, understanding your options and knowing how to respond can help you navigate this tricky situation while protecting your investment. Here’s what to do.
Look into why this happened
Appraisers sometimes use outdated or limited data to determine a property’s value, which can result in an appraisal that falls short of the home’s actual value. Review the appraisal report carefully to ensure that it accurately reflects the property’s features, size and condition.
Challenge the appraisal if necessary
If you believe the appraised value is incorrect, you can dispute it. The seller will likely want to dispute it as well, since the appraisal should be in line with their asking price. Lenders may order a second appraisal or adjust the original value if your evidence is compelling.
Renegotiate with the seller
A low appraisal can give you leverage to renegotiate with the property seller. You may, for instance, ask them to lower the price to match the appraised value, split the difference or make repairs to bring the property’s value in line with your offer. You may reach a fair agreement that keeps the deal on track through open communication and cooperation.
Explore your options
The seller may refuse to lower the price or make concessions even after a low appraisal and good-faith negotiations. In such a case, you can walk away from the deal if your purchase contract includes an appraisal contingency protecting your earnest money.
Reaching out for experienced legal guidance can help you prepare for such unexpected hurdles and determine the best course of action for your situation.