Appraisal Update - What happens when value comes in Low?
Recently had a transaction (here in Arizona) where the appraised value came in below the purchase price. For this informative blog, I will say the List Price was $500,000, offer price was $450,000 and appraised value came in at $445,000. I wanted to give you the run down on the possible scenarios moving forward due to the appraisal coming in at $445,000 instead of $450,000
Here is a breakdown of the options at hand (for both sides) as explained by The Real Estate Guy®
1) Both parties mutually agree to cancel, buyer keeps EM deposit, no harm-no foul-they "lose" their appraisal fee and inspection fee (as in this transaction, both were deemed buyers costs)
2) Seller agrees to drop price to appraised price (this is most common) The sellers and their agent have the right of challenging the value (See below #4)
3) Buyer agrees to make up the difference in cash (bring an additional $5,000 to the table and all terms stay the same (I Never recommend this)-to me that is buying a house "upside down".
4) Seller and/or Selling Agent, can dispute the value by providing comparable sales that were used when the home was originally listed. Once provided the appraiser and the underwriter(s) will review said comparable sales, then decide to use them or not, when assessing final value. If they agree to use them, value will be adjusted accordingly (no guarantee it comes back to purchase price). If they choose not to use them (for whatever reason them deem) value remains at the Appraised Price.
There are certainly other ways to negotiate this type of situation, but every transaction is unique and offers its own specific challenges during the escrow process. When in doubt, rely on the Professional you hired to protect your investment (if you are the seller) or protect your rights (If you are the buyer)