What Happens If the Appraisal Is Lower Than Your Offer?

 In Mortgage

When finalizing buying a house, a buyer will inevitably have to deal with the outcome of a home appraisal. Everyone likes to think that once their offer is accepted and the house is under contract, everything will go smoothly from there. 

Unfortunately, that’s not how things always go. There is always a chance that the appraisal will come back lower than your offer, meaning you’ll need to rethink your approach.

While all of this can be confusing and frustrating, remember to stay calm and look at the situation rationally to make the best financial decision for yourself. There are ways you can still move forward and get your dream house while remaining on the upper hand. 

Learn more about what happens if the appraisal is lower than the offer and what you can do as the buyer. 

Reasons for Low Appraisals

Before covering what happens if the appraisal is lower than the offer, it’s best to understand why these discrepancies occur. The reason may inform you or your real estate agent about how best to proceed. 

Bidding Wars

If you find yourself the victor of a bidding war, you may end up closing the deal at a  higher price than what would be expected of the house for sale. These competitive bids can often drive numbers above the listed sale price, let alone the appraisal price that’s determined in closing.

Appraisals are based on the condition of the house, overall market trends, and historical real estate data for the area. Despite the conditions that led to your final bid-winning price, the conditions for appraisal will remain firm.

Hot Markets and Popular Seasons

The housing market isn’t stagnant, but appraisal prices are far slower to adapt to trends. There are better and worse times to buy a house. 

For example, if the market is hot, prices will be higher, and your offer may be reasonable for the time while also being much higher than it would have been six months ago. If the appraiser only has data from six months ago to compare to, you won’t get a timely assessment. 

Additionally, the best seasons for buying and selling will vary year-to-year. This may not be accurately reflected in the data that the appraiser has to work with. 

Mistakes in the Appraiser’s Work

As they say, to err is human. While appraisers must undergo state-approved instruction and licensing requirements, they are not perfect. Your appraiser may be new to the profession or new to the area. Either way, they may be working with limited information. 

If you think this may be the case, speak with your real estate agent. In this case, getting a second opinion from another appraisal agent may be worth the extra cost to you. There’s an extremely high bar to clear to get the initial appraisal rejected, but it could pay dividends if it all works out. 

But before you hire an appraiser for a second opinion, speak with your agent first to avoid wasted dollars and if there isn’t hope of the initial appraisal being deficient. 

A Lack of Comparable Sales

The location the house is in is just as important as the house itself. Appraisals will depend heavily on the real estate around the target house and the historical prices the area has seen. This can make unusual or unique houses have appraisals that feel mismatched. 

How to Respond As the Buyer

So you’ve received the low appraisal — now what? While working with loans from the bank, the appraisal cost will affect the amount that will be agreed to be lent to you. 

Aside from getting a second opinion, there are three primary options for you as the buyer. 

Renegotiate the Deal

Negotiations aren’t off the table. Go back to your real estate agent and see what they can do to negotiate a lower price with the seller.  For whatever reasons that led to the appraisal of the house to be lower than their listed price, they may be willing to reconsider their angle and the true value of the house. If you are working directly with the seller, you can try negotiating directly. They don’t want to lose the prospect of a sale, and you can only bring as much to the table as the house is worth.

However, there’s always a chance that the seller will not budge. If this is the case, and you are committed to the sale, you may have to make some tough decisions.

Cover More of the Costs Out of Pocket

If you can make up the difference between the selling price and the price determined by appraisal, then you have a straightforward solution to securing your dream home. Whether those funds come from a savings account or a second loan, make sure that you can handle the additional debt and that the house is truly worth the effort. 

End the Contract

If you can’t make up the difference between the approved loan amount and the house’s price, it may be best just to walk away and find another home. 

How a Loan May Help

When you receive a low appraisal but the seller won’t budge in renegotiating, covering the discrepancy with your own money may seem out of the question. After all, you applied for a mortgage for a reason — you can’t pay upfront for a house. 

However, consider that you only need to pay the difference between the appraisal price and the offer. If the discrepancy is huge, getting a loan for the difference may not be the smartest choice for your financial future. However, if it’s simply a matter of not having the cash at the moment but knowing you can pay off the loan, there are many loan options available to you. 

Depending on your financial situation, here are some loans that may suit your needs:

  • Private Lending
  • Hard Money Loans
  • Subprime Loans
  • Conventional Loans

If you’re not sure which loan is right for you or how to get started applying for a loan, contact the Associates Home Loan team for more information. 

Find Support in Buying Your New Home

Dealing with what happens if the appraisal is lower than the offer can be stressful, but you don’t need to go through it alone. 

Surrounding yourself with industry professionals will provide you with valuable guidance and help throughout the process. When you have a low appraisal but the seller won’t budge, a loan professional will get you the extra financial support you need to close the sale. 

Contact our team today to learn more about how we help homeowners secure their dream homes. 

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