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What If My Appraisal Comes In Lower Than The Sales Price?

I get this question on almost every transaction and there is no ONE answer. I will answer like an attorney, “It depends.”

The first issue is what type of loan is the buyer getting? Conventional or FHA? If the buyer acquires an appraisal and is seeking an FHA loan then the appraisal will remain attached to the property for SIX MONTHS. It is assigned a case number and  all FHA appraisers and underwriters will be able to check to see what the appraised value is. So…in this case it has been my experience that if the appraisal comes in lower than the agreed upon sales price MOST OFTEN the seller is forced to lower the sales price to the appraised price. The only other option they have is to keep the property on the market and hope that the next buyer is seeking conventional financing and they get a higher appraisal. This is not typically a good strategy as it would keep a large number of potential buyers from being able to purchase the home…and there is no guarantee that a conventional appraisal would come in any higher.

If the buyer’s are seeking a conventional loan then a conventional appraisal would be ordered. Typically I have seen the same outcome as above…that of the sellers lowering the sales price in order to make the deal happen. Another possibility is that the sellers “challenge” the appraisal and arrange for the lender to have a second appraisal completed (at their expense) in an effort to prove there were “better comps” that were not used on the first appraisal. I have seen this work…and I have seen this fail. In my experience the underwrites are increasingly resistant to go with the higher values.

Another potential outcome deals with seller concessions. If the sellers had agreed to contribute to the buyer’s closing costs, they may decide to NOT do this if they have to settle for a lower sales price. If the buyer’s don’t have the funds available to close this may just kill the deal all together.

One more possible solution is that the buyer’s proceed with the purchase and agree to come to the table with additional cash. This sounds ‘”crazy” to most people given our market…but I have had this happen more than once. If the buyer’s really LOVE the home…they may be willing to pay a little more for it. In one case the home had a basement (rare here in Arizona) that was completely set up for a craft/game room. PERFECT for the clients and they knew they were not going to find a similar set up easily…if ever. So they decided to bring an additional $4000 to close in order to purchase the home.

So…if you are purchasing a home the appraisal process is just one of the steps to reach a successful close…and a good agent will help you navigate through the hoops and hurdles!

If you are looking for a GREAT agent to help with your real estate needs please e-mail me or give me a call at 602-504-3898 or 888-897-7821 x 114. Plus, I have a GREAT search tool on my web site that gives you the ability to search the entire MLS…just like agents do. Very COOL! ;) Go to Metro Phoenix Homes and check it out! YOU can create and save as many searches as you would like.


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