So what happens when an appraisal comes in higher? Essentially nothing. It's a good thing in essentially the buyer has already created equity in the property, but it doesn't really impact the deal. It doesn't effect the financing because a bank will take the lower of the appraised upon value or the agree.
Again, a home appraisal's impact on sellers should be minimal given that sellers typically don't see the appraisal report. Even if they do, a high appraisal doesn't give them the right to cancel the sale unless a contingency in the agreement says otherwise.
So, even if the appraisal soars above the contract price, buyers won't be able to use that extra value to beef up their down payment. A higher appraisal essentially hints that the buyers might have snagged a sweeter deal than they thought, paying less than what other similar homes in the neighborhood are going for.
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.
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.
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.
If the appraisal value is lower, the mortgage lender of the buyer will not lend more than the appraised value, which could create a financial shortfall for the buyer. In such a scenario, the buyer would need to come up with more cash or renegotiate the price with the seller to match the appraisal value.
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.
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.
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.
Technically, appraisals don't expire, but lenders may refuse to honor them if they think the appraisal is too old. Most appraisals will be accepted for 90 days and many for up to six months. Rapidly changing market conditions can reduce the time frame to as little as 30 days.
Can a house sell for more than the appraisal? If the sale price comes back higher than the buyer's appraisal, the deal doesn't immediately get canceled. Here are a few solutions for moving forward: The buyer can make up the difference between the appraised amount the bank is willing to finance and the selling 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.
This can be a problem because lenders will only lend on the appraised value. 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.
If you decide you want to dispute the appraisal, work with your real estate agent to reconsider the value. You'll typically need to back up your request with comparable evidence, such as comparable properties or records indicating that the initial appraisal used incorrect or incomplete information.
What happens if the appraisal comes in above the purchase price of the home? 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. Your mortgage amount doesn't change because the selling price won't increase to meet the appraisal value.
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 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.
With the contingency in place, the buyer will purchase the home only if the appraisal is equal to or higher than the sales price. The appraisal contingency gives you the option to negotiate a lower price or walk away from the deal.
As a realtor or a homeowner, you should avoid saying things like: – Is it going to come in at this “value”? – I'll be happy as long as it appraises for at least the sales price. – Do your best to get the value as high as possible.
The main factors that can hurt a home appraisal include needed updates, comparable properties, market conditions, your home's location, and whether you hired an inspector to flag issues or necessary repairs.
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.
The standard, professional answer is, of course: “No, it won't affect value. Appraisers are trained to look at the structure and layout of the house, and overlook the sinkful of dirty dishes. Don't worry.”
The appraiser will visit the house
Depending on the size of a home, it can take an appraiser anywhere between 15 minutes and a few hours to walk through entirely. They'll also ask the broker about whether improvements have been made or if there are any repairs they should include in their valuation.