What if the appraiser returns a low price for a home?

On Behalf of | Nov 7, 2022 | Real Estate Law |

It can be hard to know what a property is truly worth whether you want to sell your home or buy a listed property. The real estate market is in constant flux, and it can be hard to separate your emotional reaction to a property from what the market might say about its current value.

If there will be a mortgage used to fund the transaction, then an appraisal will almost always be necessary. Many buyers will require an appraisal and include an appraisal contingency when making a cash offer as well for their financial protection. A professional appraiser will look at the sale price of other nearby properties in recent months and then compare those sales with the condition of the property to determine its likely fair market value.

The results of an appraisal can determine whether or not a lender will fund a transaction. What happens when the appraisal on a property comes in lower than the offer made on it?

Appraisal gaps demand careful consideration

When the appraiser decides that the sale price is higher than the fair market value for the property, the transaction has an appraisal gap. All of the parties involved in a real estate transaction with an appraisal gap issue have to think carefully about the situation.

For example, sellers may have to ask themselves whether they want to relist the property and run the risk of the same thing happening again unless they can find a cash buyer. They may recognize that some compromise regarding the price will be the easiest solution. Other times, they may want to wait and try to get more.

For the buyer, the issue may be whether they want to pursue the purchase at all if the home is not worth what they originally thought. If they want to follow through with the purchase, they will need to negotiate with the seller, raise funds to cover the gap or possibly get a different appraisal. Some buyers go through a new lender to secure a fresh appraisal.

Each of these approaches has both benefits and drawbacks for those involved in a real estate transaction. Identifying possible concerns about residential real estate sales can help sellers and buyers get to the closing table more quickly.