You found the “perfect” home, only to later learn that the appraisal came back short of the contract price. The shock can leave you scrambling for answers and fear over what happens next.
Before you panic, here’s what you need to know to navigate the situation and, hopefully, keep your deal on track..
Understanding the appraisal process
When you purchase a home with a home loan, the bank or lending establishment is going to bring the bulk of the money to closing. Because of that they typically require that the home’s value be assessed. They do this to ensure that it is a good investment for them, before they fully agree to fund the loan.
A low appraisal does not necessarily mean that the home was overpriced.
“Sometimes a seller has their property listed at a price where there simply are not a lot of comparable sales for the appraiser to use in approving the value of that home,” said Becky Seda, lead agent for Seda Real Estate Group, in Oklahoma City.
What’s next?
A low appraisal does not have to be a dealbreaker. Here are a few steps to help you navigate the process.
- The first thing to do if the appraisal comes back low is to have your buyer’s agent provide comps to the appraiser to show why the home’s value could be higher.
- If that doesn’t work, get the listing agent involved. They can provide details and documentation about why the home was priced a certain way.
- If that doesn’t work, you can order another appraisal. There will be a cost associated with this option. Typically, in Oklahoma, appraisals start at about $650 and go up in cost from there.
- Another option is to “bridge the gap.”
Bridging the gap, in this case, means filling in what the bank will not cover. This can be quite confusing, but let’s try to explain it some.
When you buy a home with a loan there will be a minimum down payment required. The amount is based on the type of loan. For example, with a conventional loan, the bank might require a 5% down payment, meaning they’ll lend 95% of the sale price. However, if the property appraises for less than the sale price, the bank will only lend 95% of the appraised value. This means the buyer must either cover the difference to make up the gap, negotiate with the seller to reduce the price, or meet somewhere in the middle.
*If this is something you are facing, we strongly suggest you talk with your agent and the lender to fully understand what the change in your down payment would be.
Negotiations
The next option is to go to the seller and renegotiate the sale price. That happens quite often.
“If you really believe the home was overpriced and the price of the appraisal is the true value of the home, then you can tell the seller, ‘I’m not going to pay more than the appraised value,’” said Seda.
Ultimately, if you and the seller cannot see eye to eye, under normal terms of the Oklahoma contract, you and the seller can part ways. In this case, you would get your earnest money back. However, you would still be out the cost of the appraisal(s) and inspections. But, you are not forced to purchase the home and the seller is not forced to sell you the home for less than the contract price you had initially agreed upon.
If you have questions about this process our team would be happy to help. Give us a call at 405-400-9973 or email us at contact@sedarealestate.com.