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.
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.
1. The buyer may terminate the contract. 2. The buyer and seller may renegotiate a lower sales price. 3. The buyer may pay a higher down payment to bridge the gap between the appraisal and the sales price.
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.
You can write up an addendum and tell the seller effectively, “Sorry, the appraisal came in at 480. I know we're under contract for 500. But I would like to amend the price to 480.” They can sign it, they can reject it. They can counter-offer and say maybe 490, split the difference.
Real estate experts estimate between 10-20% of appraisals come in lower than the sale price. But in today's competitive housing market, more homes are selling with multiple offers and the chances of an appraisal gap is increasing. When there is an appraisal gap you have five options. Renegotiate the deal.
When the appraised value is lower than the pending purchase price, it can be problematic for everyone involved. The buyer and seller could agree to lower the sale price to the appraised value, the buyer may need to come up with additional down payment funds, or the parties could cancel the sale altogether.
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.
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.
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.
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.
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 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.
In a sellers market, it's not uncommon for homes to sell above their listing price or even their appraised value.
In that scenario, you would be responsible for the difference between the sales price and the appraised value. That's because lenders can't lend beyond a home's appraised value, regardless of what the house actually sells for— they must use the lesser of the two.
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.
“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.”
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.
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.
If you're selling a home that's appraised at less than the asking price, there's a real possibility the buyer won't be willing to make up the difference. But if the deal falls through, you may be able to move on to another offer from a buyer who can afford to make a larger down payment.
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.
Renegotiate With the Seller
Alternatively, you might consider including an appraisal gap clause in your offer. This clause specifies the maximum amount you're willing to pay above the appraised value. If the gap exceeds this amount, you can renegotiate or walk away from the deal.
Not usually. The buyer has the option with an appraisal contingency, not the seller. However, if the sales agreement has a "kick-out clause," the seller can continue to show the home. If the seller finds another buyer willing to pay the asking price despite the low appraisal, you'll face a deadline to decide.