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 higher appraisal can improve your loan-to-value ratio, which may lead to better loan terms, such as lower interest rates or reduced private mortgage insurance (PMI) requirements.
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. There's no reason to panic if your appraisal comes in lower than you expect it to, though.
High Appraisal
An appraisal that comes in high for a homeowner preparing to refinance can increase a homeowner's equity, which could boost their cash-out refinance proceeds or remove their private mortgage insurance (PMI) obligations on a conventional loan.
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.
The appraiser's primary role is to determine the fair market value of the property based on objective factors such as its condition, location, comparable sales, and market trends. The appraised opinion of value may be the same or very close to the contract price however, it may also be considerably higher or lower.
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.
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.
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.
During the appraisal process, a licensed appraiser will visit the home and review MLS sales data in order to render an opinion on the property's value. Unlike the home inspection, we very often advise our sellers to be present when the appraiser visits their home.
Appraisers consider "curb appeal," or how a property looks overall on approach in comparison to other homes in the area, when valuing a home. Calculations for lot size and views factor in as well, but having useable, clean and attractive land adds to the appraisal value and appeal of the house to buyers.
You can sell a home for more than the appraised value — but it's not ideal because it can cause financial problems for the buyer. Therefore, listing your house above the appraisal amount may significantly limit the number of potential buyers for your home.
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.
3.9% of real estate sales fail after the contract is signed.
There's nothing more frustrating than having a buyer back out at the last second. Even if you're lucky and the house sells quickly and above the asking price after a heated bidding war, many things can go wrong that cause a deal to fall through.
When the valuation figure is higher than agreed sale price, the transaction will still go through at the agreed sale price if the buyer chooses to exercise the Option to Purchase. The idea is the moment seller issues OTP at agreed price, they are obliged to sell at that price.
Either the buyer or the seller can challenge an appraisal or request a second appraisal. "A challenge should be based on specific errors rather than opinions," notes Stephens.
If you review the assessment objectively and feel it is off-base, write a rebuttal or provide comments on your performance appraisal. State clearly why you disagree with the evaluation. A rebuttal aims to add a permanent record to your current review.
Telling an appraiser that you think the house is worth more can backfire. It may make the appraiser suspicious of your motives. Appraisers are trained professionals who use market data to determine a home's value. They don't base their assessment on what the homeowner thinks.
If A House Is Appraised Higher Than The Purchase Price
You're in a good situation if this happens. It simply means that you've agreed to pay the seller less than the home's market value.
You may even question whether the appraiser is a local and if they are familiar with the neighborhood. Can You Hire Another Appraiser? If you don't agree with the original appraiser's valuation, you and your real estate agent can request another appraiser. Typically, you'll have to pay for this yourself.
You may try to negotiate a lower price with the seller, but if a compromise can't be reached – or you can't pay the difference to cover the appraisal gap – the sale could fall through.
The appraisers know what the listing price was and what the contract price is. If they do, does that mean that you got a fair price for the house, or is the appraisal basically just a meaningless formality? The appraiser doesn't work for you, they work for the bank.
No, it will not affect your taxes. The appraiser does not report the appraised value or anything they see in the home (e.g., illegal decks or additions, converted garages, etc.) to the tax assessor.
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.