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.
Can a home seller change the price after a contract is signed? No. Typically, when a seller wants to back out of a contract, it's because the house appraised much higher than the offer and the seller wants a do-over. Unfortunately, at that point, you'd be legally obligated to go through with the under-contract buyer.
Nowadays, most sales contracts have a safety net built in for buyers. 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.
No, the sellers can't unilaterally cancel a valid contract. Your attorney will be able to tell you exactly what the sellers can and can't do but cancelling a contract for a better offer isn't one of the choices. As mentioned, the appraisal contingency is the critical issue here - and yes, the actual words matter.
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 buyer can sue a seller who cancels a home sale in a way not allowed by the purchase and sale contract. It's always a good idea to consult with a real estate attorney before deciding to cancel a sale you've agreed to.
If the buyer can't come up with more cash and the seller won't lower the price, the buyer may have no choice but to back out of the sale. If the purchase agreement doesn't contain an appraisal contingency, the buyer will lose their earnest money deposit and possibly even face legal action.
They can't back out. Get a lawyer.
Homeowners can also ask to accompany the appraiser during the inspection, although they should run that by the lender first, as the appraisal is done on behalf of the bank. Homeowners can appeal an appraisal, but before taking steps to do that they should find out if the buyer is willing to pay the higher price.
Can the seller back out if the appraised value is too high? The conditions of the offer contract will determine when the buyer and seller can back out of the purchase. However, the seller may simply want to renegotiate if the appraised value comes back significantly higher than the selling price.
On the flip side, if the appraised value of a home you just bought comes in higher than the sales price, then you got yourself a deal! Your mortgage won't be affected by this, and good news—you've got a little more equity than expected.
In California, home sellers are not obligated to accept a full-price offer on their home even if the amount is greater than the full asking price.
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.
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.
Consumers have the option of filing a complaint regarding their appraisal or evaluation directly with their lender, or through the lender's federal regulator. Visit HelpWithMyBank.gov for more information about how to contact your lender's regulator and how to file an appraisal complaint.
While it's always great for the property appraisal to come back higher than the amount you agreed to buy it for, this is no way affects the loan amount you need to qualify for, or the down payment you need to close on the mortgage loan. Both conventional and unconventional mortgage products offer similar requirements.
Issues For The Seller
However, if the appraisal gap is significant or you need to sell quickly or the housing market has cooled, it may be a sign that you need to negotiate with the buyer or lower your asking price.
An appraisal gap is the difference between the fair market value determined by an appraiser and the amount you agreed to pay for the home. An appraisal gap doesn't mean you have to cancel the sale, but it may mean you have to negotiate with the seller or pay the difference for the home out of pocket.
Contingencies are conditions that must be met before a real estate agreement is legally binding. An appraisal contingency is a clause that allows home buyers to back out of an agreement if the appraisal value of the property is lower than the purchase price.
The seller can back out for reasons written into the contract, including (but not limited to) contingencies. The buyer is in breach of the contract. If the buyer is “failing to perform” — a legal term meaning that they're not holding up their side of the contract — the seller can likely get out of the contract.
Depending on the laws of your state, you may have up to 3 years to seek legal action if the sellers KNOWINGLY hid or lied about issues in their disclosure. If a property is sold “as is” or purchased through an auction, then it is up to the buyer to do their due diligence and pay for any inspections that they choose.
In some states, like California, a notice to perform is necessary before either party can legally back out of a contract. If you're having trouble writing the right kind of purchase contract or just need general assistance when selling, consider getting expert help from a licensed real estate agent.