An appraisal is an independent, unbiased evaluation of a property’s worth, which is conducted by a professional appraiser. The appraisal report is used by the lender to determine how much they are willing to lend for the property. But what happens if the appraisal comes in low? Let’s explore the various scenarios that could occur.
It’s important to understand that the appraisal is ordered by the lender, and the buyer typically pays for it. The appraiser is an independent third party, and their appraisal report is used to determine the market value of the property.
If the appraisal comes in low, the buyer has a few options. They can cancel the contract, bring additional funds to the closing, or renegotiate the price with the seller. Let’s dive into each of these options.
Option 1: Buyer Can Cancel the Contract
If the appraisal comes in lower than the agreed-upon price, the buyer has the option to cancel the contract. This is especially true if the appraisal is significantly lower than the asking price, and the buyer can no longer secure the necessary financing. If the buyer decides to cancel the contract, they typically get their earnest money deposit back.
Option 2: Buyer Can Bring Additional Funds
If the appraisal comes in low but is only slightly below the agreed-upon price, the buyer may choose to bring additional funds to the closing. This means that the buyer will have to pay the difference between the appraised value and the agreed-upon price in cash. If the buyer decides to take this route, they must have the additional funds available to close the transaction.
Option 3: Seller Could Agree to Take Less Money
The final option is for the buyer and seller to renegotiate the price. The seller may agree to take less money if they are motivated to sell the property quickly. This is typically a last resort for the seller since it means less money in their pocket. However, if the seller is willing to lower the price, it can help the transaction move forward.
A low appraisal can cause some challenges during a real estate transaction. However, it’s important to remember that there are options available to both the buyer and the seller.
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