What happens if a home does not appraise at the agreed price?

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It’s not uncommon for an appraisal to come in below the purchase price. This typically occurs when either the home was listed at a price that exceeded the market value for the area or there were multiple offers that drove the price above the comparable sales activity.

Now, how does this impact your transaction? Well, it depends on which side you’re on. If you’re the Buyer, you get to sit back and wait to see how the Seller chooses to handle this dilemma.

Seller, you’re on deck. You have a few options, but only one real practical choice.

1) Order a New Appraisal

Ordering a new appraisal will most likely be at your expense (approximately $500 – $600). If the initial appraisal was off by about 1 – 3%, it may be worth the gamble to get an extra few thousand dollars. However, you do risk the second appraisal coming in lower than the first one. Good luck convincing the Buyer to go with the higher appraisal if they discover the value on the latest report.

2) Ask the Buyer to Pay the Difference

Another option is to ask the Buyer to cover the difference out of pocket. For example, the purchase price is $200,000, but the appraisal came in at $190,000.

You could request that the Buyer pay the additional $10,000 at closing. Now, will someone be willing to pay more than what something is worth? I don’t know, I’ve yet to meet such a person. You get my point.

3) Put the Home Back on the Market

If you don’t want to pay for a new appraisal, a new appraisal didn’t come in at the value you expected or the Buyer won’t pay the difference, you could put the home back on the market with hopes of getting a new Buyer with a more favorable appraisal.

However, that’s really not much different than option #1. Keep in mind, putting the home back on the market means at least another 1 to 2 more mortgage payments and utility bills. Subtract that from the original appraisal to see if it’s worth the net amount.

4) Reduce the Price

This is the most common option. Reducing the price, while painful, can often be the most advantageous strategy. You avoid the risk of ordering another appraisal, the expense of hiring another appraiser and the potential net loss from putting the home back on the market. After all, market value is market value, regardless of what a Buyer is willing to pay.