If you have an appraisal contingency in your contract, you can back out of an offer if it comes in lower than the sell price. You can because that means the bank won't give you as much money for the mortgage. The bank only covers what it appraises for.
If your appraised value is lower than the agreed upon sales price, you'll have to make up the difference in cash, or cancel the deal.
Most purchase agreements contain appraisal contingencies, which allow buyers to back out if the property appraises below the sales price. The seller is not obligated to lower their price. The buyer is not obligated to continue with the purchase. They'll get their earnest money deposit back if they decide to walk away.
Why would the buyers agent support the price with the comps, that's the listing agents job. If the appraisal comes in low, that's generally better for the buyer, as in most cases they'll get a better deal with a price drop to meet the appraised value.
There's often an addendum that allows buyers to back out without losing their earnest money deposit if the appraisal doesn't match the offer price. If the sellers stand firm and don't want to budge on price, the deal might fall through, sending the buyers back on their search for the perfect home.
Do sellers usually lower their asking price if the appraised value is lower? Whether the seller decides to lower their asking price will depend on a number of factors, including how motivated they are to sell or if they have other offers above asking price.
When the difference between the appraisal and the purchase contract is significant, buyers may need to try to negotiate a change with the seller. In some cases, the seller may be willing to consider adjusting the contract so the sale can proceed.
The above issues might seem concerning but, according to Fannie Mae, “the vast majority of appraisals confirm contract price.” In fact, they come back low less than 10% of the time. So, chances are, you won't run into this issue.
An appraisal gap refers to the difference between a home's appraised market value and the purchase price and occurs when the appraiser's assessment of the property's worth doesn't match the price a buyer and seller have agreed on.
You can dispute the appraisal by submitting a reconsideration of value (ROV). However, before doing this, you should thoroughly review your valuation with your real estate agent (who might also be a REALTOR®).
If you receive a down valuation, there are a number of things that you can do: Negotiate with the seller. If you are happy to go ahead with the purchase irrespective of the surveyor's suggested price, you may be able to negotiate with the seller to reduce the price of the property. Challenge the valuation.
“It has nothing to do with the seller; it is ordered by your lender, and payment is due regardless of the outcome,” says Maria Jeantet, a real estate agent with Coldwell Banker C&C Properties in Redding, CA. “It is typically paid by the buyer unless specifically negotiated ahead of time to be paid by the seller.”
“In a competitive housing market, where multiple offers are being made on a property, a seller may prefer an offer that waives some or all contingencies,” says Matthew Martinez, CEO of Diamond Real Estate Group in Santa Rosa, California. You can save money if you're paying cash.
Most appraisals come in at the right price. According to a report by Corporate Settlement Solutions (CSS), only about 8% of properties sold in the first half of 2024 sold for more than their appraised values. The biggest appraisal gap occurred in April 2022, when 20% of homes appraised for less than their sales price.
Can the seller back out of a high appraisal sale? Can the seller back out if your appraisal is high? Realistically, the answer is “no.” For one, they accepted your offer and would be breaching the sales contract if they wanted to put the house back on the market to capture a higher price.
A sales contract with a kick-out clause allows you to continue marketing and showing the property. If by the kick-out clause date you find another buyer willing to pay the sales price despite the lower appraised value, you can 'kick out' the original buyer and accept the new offer.
The entire home appraisal process typically takes a few days to a week, depending on various factors. However, once the mortgage lender has selected a professional appraisal, it should take up to 48 hours for the appraiser to schedule the home visit. The appraisal can take as little as 30 minutes or up to a few hours.
If the appraisal comes back low, it can delay or hinder your ability to move forward with the transaction. This is because mortgage lenders won't lend more money than the appraised value, forcing the buyer to take action of some kind.
Appraisal is lower than the offer: If the home appraises for less than the agreed-upon sale price, the lender won't approve the loan. In this situation, buyers and sellers need to come to a mutually beneficial solution that will hold the deal together — more on that later.
An aggressive offer is more than the price. A good buyer's agent will know how to sell your aggressive offer. More importantly make sure you chose an agent who will aggressively sell you as the best buyer in any market or price range.
Yahoo Finance tip: Your purchase contract must include an appraisal contingency, which states you can back out if the appraised amount is too low. Otherwise, you will forfeit the earnest money you put into the deal if you walk.
The seller often does not generally get a copy of the appraisal, but they can request one. The CRES Risk Management legal advice team noted that an appraisal is material to a transaction and like a property inspection report for a purchase, it needs to be provided to the seller, whether or not the sale closes.
Poorly maintained homes or foreclosures have been known to drag property values down significantly. Their negative impact on appearances and security concerns will be taken into account when assessing area desirability levels.
If a home is appraised to be higher than the asking price, the lender will only issue a mortgage for the appraisal amount. This leaves the borrower to either cover the remaining cost on their own or return to searching for a home with a listed price that matches the appraised value.