You’re almost there… the mortgage lender has approved you for a loan. Now the lender is making sure that the property you want to buy is really worth what you are paying for it. Here is Part 2 of a two-part series about home appraisals.
A low appraisal is the last thing that will stop a lending institution from giving you the loan you need. So what should you do if it comes in too low? As the Hitchhiker’s Guide to the Galaxy constantly reminds its readers: “Don’t panic.”
There are a number of reasons why an appraisal might be low, and you don’t have control over any of them.
- The seller could have over priced the property;
- Property values in the neighborhood may have gone down because of foreclosures;
- The neighborhood may be experiencing an abundance of properties for sale and a small number of buyers;
- The appraiser may have miscalculated the value, perhaps due to inexperience, or a poor choice of comparables, or because he wasn’t familiar with the particular area.
Banks make their mortgage loans based on a percentage of the appraisal or the purchase price, whichever is lower. You paid to have the appraisal done; always ask for a copy of it.
Here are some positive steps you can take to move forward.
- Talk with the seller about renegotiating the deal. You probably inserted a contingency clause in your Purchase Contract that said the deal would be null and void if you weren’t able to get your financing. A low appraisal pretty much assures that you’re not going to get it. But if the deal falls through, the seller will have to start all over again, and if he’s been trying to sell the house for a while, he may be very willing to lower the price to keep you as the buyer. After all, you’ve been approved otherwise, and it’s not your fault that the appraisal came in low.
- If the seller isn’t willing to renegotiate, but you still want the house, you could make up the difference in cash between the amount that your loan was supposed to be and what the bank is now willing to loan you.
- Some sellers may be in a position to personally finance a second mortgage for the difference, but it has to be approved by the first lender.
- You could pay for a second appraisal. Home appraisers are unique individuals and it’s unlikely that two of them will come up with the exact same figure. Ordering a second appraisal might be a good move if the appraiser was from out of town and didn’t really know the area well. However, make sure first that the bank will agree to reconsider the value.
- You could find other comparables that you think are closer matches to the property you want to buy than were the properties the appraiser selected. Then you would send these new comparables to the lender and ask him to reassess the appraisal.
Of course, another option is to cancel the purchase contract if you believe that the price was actually inflated. Whatever you decide to do, though, it’s important to proceed calmly. Most situations that look like problems are actually opportunities waiting for creative solutions. So: “Don’t panic,” and work through any issues step-by-step. Your realtor will be an invaluable resource for you in this situation.
Make sure to Susanne today at 614-975-9650 to discuss strategies for dealing with a low appraisal.