In a purchase transaction, a higher appraised value doesn't have much of an impact. When evaluating a loan application, lenders will use the lower of the appraised value or sales price.
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 does not change because the selling price will not increase to meet the appraisal 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.
If you don't have enough cash to put down a 20% deposit, your lender requires you to buy PMI. Getting an appraisal higher than the purchase price affects PMI. You can instantly start building up equity in your new home and shorten the time needed to eliminate this added expense.
Here's what that means for you: → If the appraisal comes in higher than the purchase price, you're good to go — your home's value is increasing and that's always a good thing. If it's a cash-out refinance, you may be able to get better refinance interest rates or take out more cash than you had originally planned.
A higher than anticipated appraisal isn't great news for the seller, but unless they've written something into the sales contract, there's not a lot they can do after they've accepted the offer. If they back out, they would be in breach of contract.
“Getting an appraisal before putting your property on the market may actually cause you to get less for your property, as the appraised value could very likely be lower than what you believe is the property's market value,” Upton says.
The amount you pay in PMI is a percentage of your principal mortgage loan amount. It is not impacted by appraisal. However, if your home increases in value to the point that you have gained substantial equity, a home appraisal will help prove to your lender that you qualify for PMI removal.
The appraiser will most likely know the selling price of a home. Why? Because the standard appraisal forms require the appraiser to enter the information, thus the appraiser will have a copy of the purchase contract.
That means only 1 out of every 10 purchase appraisals comes in below the agreed upon sales price. In other words, a super majority are coming it at or above the purchase price! Though it may smell a bit fishy, it actually makes complete sense…if you understand the appraisal process as explained above.
If the purchase agreement contains an appraisal contingency, the buyer is protected in the case of a low appraisal. If the buyer can't get the seller to adjust the price or come up with the difference in cash, they can walk away from the sale with their earnest money deposit returned to them.
Although the seller may have accepted an offer, as a buyer, you can ask the seller to lower the asking price to something closer to the appraised value. This will reduce the seller's profit, but it may be worth it to them to keep the home sale on track.
That said, most appraisals are in line with the selling price. On average, only one in 10 home appraisals come in low, but this can vary from region to region. If your house ends up in that 10%, here are some potential reasons why.
Most appraisals come in at the right price. According to CoreLogic, in general, appraisals come in below contract only about 7-9% of the time.
If the appraised value creates any sort of obstacle or inability for the buyer to purchase the property with the approved loan amount, loan-to-value, or down payment requirement, it opens the door for the loan to be denied.
There's an acceptable variance when it comes to home appraisals. It usually depends on the prevailing market conditions. In markets with favorable conditions, the difference should be between 2% and 3% of the other values. For markets with challenging conditions, a 10% difference may be acceptable.
Remember, the seller wants the appraisal to come through at value as well so they can progress their home sale, so more often than not, they are open to negotiation. A seller can even offer to pay for the second appraisal if they believe their home is worth more.
The appraisal is usually a contingency of the purchase. If the appraised value doesn't match the purchase price, either the terms may need to change, or the sale may be cancelled. Your real estate agent and lender should work with you to find a satisfactory solution.
Appraised value states what the home is worth, while sales price illustrates what buyers—or, at least one buyer—are willing to pay for this home, in this neighborhood, in this market. Appraised value is essentially the “true value” of the good, while the sales price is all about supply and demand.
Yes. If your home value increases — either by housing market trends or by you investing to upgrade the property — you may be eligible to request a PMI cancellation. You'll likely need to pay for a home appraisal to verify the new market value, but that cost can be well worth it to avoid more PMI payments.
If you're having a valuable item appraised for insurance purposes, I would refrain from saying anything that could lower the appraisal value of the item. Also, you may be asked about the provenance of the item (the ownership and how you came to acquire it), and you'll need to give honest answers to the question.
If the appraised value is well below the sale price, you may be better off not buying the home. A home can fail an appraisal if it doesn't meet the standards for the loan. In this case, the lender may decide that problems with the home's condition are too extensive to repair and may reject the home.
Appraisers do look in closets to determine the total square footage of the property. This doesn't mean every single inch of your house has to be in tip-top shape for the appraisal, but the interior of the home should be clean and free of clutter, and this includes closets, under sinks, and in the attic.
If a buyer is asking for a price adjustment based on a low appraisal, you better plan on sharing a copy of the appraisal. If the buyer is willing to pay the difference in cash, at closing, and is not asking for a price adjustment (it happens), then there is no need to share the appraisal.
To keep the deal moving along, some sellers may be willing to lower the sales price. It's worth asking the seller to do so, and then continue to evaluate different options. Some sellers who own their house outright may be willing to finance the sale for you.